Market Entry Strategy: Case study ZARA internationalisation in china

. Introduction and Background

Amongst the motivations to strategise are to grow fast ahead of

the competitors, grow in the line with the industry or to simply

catch up and defend an existing status. Despite the challenges,

threats and risks, the orientation of various firms are to

expand, to reach and to penetrate new markets segments. The

working title of the research is initially drafted as – Market

Entry Strategy: Case Study of Zara – Internationalisation in

China. The study aims to explore the effectiveness of the chosen

market entry strategy and mode of entry by Zara in penetrating

the Chinese retail market. Whether the strategy proved to be

beneficial in its initiative to internationalise the operation of

the business will be also explored. Thereby asking, what are the

benefits of putting the business within the Chinese business

environment?

As such, market entry decisions are a multi-approach that

requires careful consideration of the firm seeking to widen

economies of scope and reach. Zara should take note, however,

that market entry decisions depend on the resources and the

ability to sustain the competitive edge. In this study, different

market entry strategies and its drivers, nature and dynamics will

be explored with reference to Zara’s business. Zara’s

international strategy framework of market entry, market

selection and marketing approach is the driver behind the

internationalisation strategy of Zara. When it comes to market

entry, the question now is what are the economic and political

barriers that take effect on the strategy? 

2. Company Profile

Owned by Amancio Ortega, Zara, on the other hand, is a clothing

company originated in Spain. Inditex Group, the parent company,

claims that Zara needed just a couple of weeks to go through the

development of a new product and get it to the stores, compared

to that of six months which is the industry average. Zara also

launches products amounting 10, 000 new designs annually. Though

Zara is a vertically integrated company, Zara controls most of

the processes in the supply chain whereby 50% of the products are

manufactured in Spain, 26% in the rest of Europe and 24% in Asian

countries.  and  (2006) contend that Zara outsourced the

production of high labor intensive processes but maintained in-

house other capital intensive processes, protecting knowledge and

know how. The quick-response capability of Zara is made possible

by the three main stages that define the competitive edge of the

company: design, manufacturing and distribution.

Zara embraces the strategy to focus on operations which can

enhance cost efficiency thereby conducting most of the processes

in-house. While, the rest of the manufacturing activities

including finishing stages are completed through a network of 300

small contractors which specializes in one particular part of the

production process or garment type. These contractors work

exclusively for Inditex, and are not given more than 4% control

of the production services so that if there will be a problem

with a single contractor, there will 299 to back them.  and 

(2004) maintain that although its manufacturing costs are 15 to

20% higher than competition, Zara more than makes up for the cost

differential through its supply chain to ensure that merchandise

in the stores matches what customers want ().

Further, the competitive advantages of Zara are because of its

cost leadership, fast production and product variation. Zara

sells quality, fashionable products at reasonable prices and

based on product positioning, Zara is cheaper than its leading

rivals as Benetton and Gap. Zara also has the ability to design

and finish products to be deli8everd in stores within 4 to 5

weeks hence very quick to get designer-influenced products into

their stores. Likewise, the clothing brand has the ability to

launch new trends and designs in a much shorter period. Zara

thereby boasts for low level of inventory, efficient distribution

system and high turnover of product.   

3. Key Issues

Market Entry and/or Operations Market Entry

International strategy at Zara is defined by the combined generic

strategy of cost leadership and differentiation strategy. There

are considerations, however, such as when selecting the Chinese

market, labor cost and productivity, distribution cost and

shipment cost of raw materials are considered. Other

considerations are characteristics or behaviour of consumers and

income per capita. In terms of marketing approach, the

considerations include the 4Ps inherent to the Chinese consumers

and business environment. Market entry considerations include

economics, both macroeconomic factors which include tax,

political condition and export tariff and microeconomic factors

including local competitors, demand and location of store.

Regulation from government and local producers protection issues

are other considerations.

Operation/Expansion

There are three basic international expansion strategies as entry

modes: own subsidiaries, joint ventures and franchising. Zara

adopted the first strategy for most European and South American

countries which are perceived to have high growth potential and

low business risk. The second strategy is adopted for expanding

the business in Germany, Italy and Japan. Franchising is adopted

on high risk countries such as Saudi Arabia, Kuwait and Malaysia.

Which among this expansion strategy is used in penetrating the

Chinese market? Does Zara conform to standardisation or

customisation in its effort to enter the Chinese market? 

4. Key Success/Failure Factors

Success factors include cost leadership strategy, differentiation

of strategy, efficient distribution, information technology and

fast delivery of new products, designs and trends. However, one

of the failure factors is Zara’s centralised distribution system

which may not be inappropriate in entering a specific market of

diverse nature like that of China.  

5. Learning Points and Recommendations

When in the process of penetrating a specific market, Zara should

be guarded on issues of local competitions and how it affects

global competitions. Zara should be also watchful of product

cannibalism and lack of vertical integration. Nonetheless, the

clothing brand could consider an online market and establishing a

distribution center in the US.

 

Balanced Score Card Analysis

 

Introduction

Organisational performance effectiveness is the

accomplishment of missions or the achievement of objectives.

Whatever its mission, the effectiveness of an organization

requires that it efficiently identify, assess, solve, and cope

with events or problems that arise within the operational

environments. These are the classical functions of all

organizations, and performance of them has always been critical

for organizational success. It is clear now that functional

proficiency and the integration of management and control systems

play important roles in the performance of all organizations.

To be effective in turbulent and complex conditions, every

organization must possess capabilities to: Search out, identify,

and interpret the properties of operational situations as they

develop, solve problems as they occur within the context of

rapidly changing situational demands, generate flexible decisions

relevant to changing situations and cope with shifting

situational demands with precise appropriateness ( 2000).

It is apparent that the above capabilities require a highly

responsive and adaptive system of decision and action. In such a

system, the complex interplay between individuals, positions, and

organization levels is a critical element in flexibility and

responsiveness and, therefore, in organizational effectiveness.

Control and guidance and management of each of these performances

are an essential function to ensure improved organisational

performance.

In order achieve an effective organisational performance, it

is important to consider the management of all performances

within a certain industry. It is noted that, performance has

become a business buzz word. Organisations use many different

approaches in the quest for a high- performance workplace.

Organizational management entails practices used to guarantee

that internal functions achieve their respective goals. In the

management context, there emerge to important managements systems

that include performance management. Part of it is the

measurement of performance of organisation using tools and

instrument such as the balance scorecard systems. Primarily, the

main goal of this paper is to analyse the balance scorecard

approach of an organisation and the application of a new system

to improve their performance measurement approach.

 

Overview of the Company/Issues

            The case that will be considered in this report is

the retailer industry in Hong Kong, specifically the ZARA. The

company is noted to be the flagship chain store which is owned by

Spanish tycoon Amancio Ortega, who also owns some brands like

Pull and Bear, Bersha, Massimo Dutti and Stradivarius. The

company is regarded as one of the mode retailer industry which

has enabled to expand and compete with quality brands as well as

affordable process. Zara has resisted the business-wide trend of

transferring production to low-cost nations. The company has

established a policy which is the zero advertising and they

preferred to invest percentage revenues in opening new retail

outlets instead. The company has been regarded by others as the

most creative, innovative and devastating retailer industry in

the world. The company is a vertically-integrated enterprise;

they design, produce and distribute their products which make

them unique from other retail stores. In addition, the company

also has control most of the channels of the supply chain.

To be able to sustain its competitive position, the

management the retailer industry has been able to measure their

productivity or performance.  One of the reasons why ZARA

measures its performance is to identify whether their employees

and the industry has been able to meet their organisational

objective of providing quality service to their target market.

            Evaluating the performance of an organisation is

essential as this may serve as a tool for implementing

organizational approaches ( 1996). Measuring performance which

has been applied in the retailer enables the industry to

translate their strategy into concrete objectives. Through

performance measurement, such organisational purpose has been

communicated well to their retailer staffs and employees

(1998;2000).

One of the implications of the performance measurement used

by Zara is in terms of the reliability and credibility of the

result or findings of the conducted performance measurement or

evaluation. This can be attributed to the inability of the

management to use efficient indicators and metrics that would

effectively and credibly measure the performance of employees or

staff of the organisation.

Other issue that concerns the performance evaluation or

measurement of this retailer industry is in terms of the

inability of the management to integrate balance scorecard or

performance measurement approach integrated with their strategic

management approach. Accordingly, at the very core of this

performance measurement concept is the strategy of the industry

to guide the actions, decision as well as the assurance of

aligning the top to bottom employees.  A performance measurement

through scorecard can be developed without the guidance of

strategy. However, the implemented scorecard system of the

retailer industry becomes a key performance indicator which lacks

the attributes given by a true balanced scorecard. In this

regard, the problem occurs on having a performance measure system

that are not linked or connected with the organisational strategy

which may lead to further conflict and issues.

In the study by (2000), the researcher conducted a research

on the use of balance scorecards using 15 firms. Based from the

findings, the application of balance scorecards should consider

four main factors. First, the company must constantly communicate

with its stakeholders (managers, employees, customers, and senior

leaders). By means of communication, the company should clearly

relay the purpose of using the scorecards, how it will be used,

what it will measure as well as the outcome of the gathered

measurements. Several respondent of the study stated that two-way

communication should be practiced so as to engage, inform and

empower every stakeholder.

Another factor to consider in applying scorecards is

simplicity and flexibility. Based from the replies of the

respondent, it appears that the efficacy of BSC is enhanced when

the set of activities involved are more homogenous. The quantity

of the measures involved is not the important thing in BSC. Thus,

measures should be selected in accordance to the objectives of

the company. In order to increase the probability of success of

BSC, its application and implementation in the company should

also undergo intensive studies and planning. Most importantly,

the application of BSC requires special skills and effort.

Several steps and procedures are then needed for the design and

installation of a set of balance scorecards. Specifically, the

respondent suggested the following steps: (1) conduct an

environmental scan and develop a meaningful vision statement; (2)

develop metrics that measure the right thing; (3) develop top-

notch survey mechanisms; (4) use Intranet methods to collect

data; (5) turn data into useful information; and (6) develop

initiatives and action plans (2000).

 

Theoretical Framework Marks

            For this case study analysis, the theoretical

framework lies on the performance measurement approach. According

to  (1996), productivity performance measurement may be defined

as the process measuring the competence and efficacy of

purposeful action. Based from the administrative point of view,

productivity performance measurement is a subsystem that needs to

be formulated, handled, and assessed periodically in order to

assure the attainment of the desired outcome. Several elements

with functional interdependencies are involved within the system

of organizational productivity performance measurement.

Usually, performance measurement is carried out through

certain productivity measurement systems and Key Performance

Indicators containing several individual measures. Each

organisation is trying to have their set of KPIs for measuring

productivity. The KPIs set depends on what the management want to

evaluate and what objectives they are trying to attain.

The most common examples include the Balance Scorecard, the

Performance Pyramid and the Performance Prism ( 2000). These

systems are applied to the organization depending on its vision

and strategies ( 1996). These measures are chosen to evaluate

success factors from various points of view including the

productivity of the employees, customers, financial success, and

business operations. View of past, present and future

performances may also be measured. Another theory that can be

used is the motivational theory.

Generally, motivation is the part of the inner state of an

individual that causes him or her to behave in a way that ensures

the accomplishment of some goals.  It relates to the willingness

to exert high levels of effort toward organisation goals,

conditioned by the effort’s ability to satisfy some individual

need ( 1997).  Simply, motivation is the prime determinant of

behaviour at work and that high ability and high levels of job

training will not result in high performance if the individual is

completely demotivated or under motivated at work. 

As such organisations should stress on people approaches

which includes alterations in attitudes, motivation and

behavioral skills through new training programs, selection

procedures, and performance appraisal schemes.  According to the

model of  (1997), an organisation must be able to motivate and

satisfy employees by allowing them to have variety of skills,

task identity, task significance, autonomy and feedback. Indeed,

making a business successful in a particular setting demands

crucial and detailed studies and examination of the factors that

will generate the best results that will serve the aims and

objectives of the organisation, in this case, ZARA. It can be

said that ZARA needs to implement such organisational change has

been made to improve their performance measurement approach

(2004).

 

Application of Theory

Based on the analysis of the study, it can be said that the

retailer industry like Zara must be able to have a conducing

environment for their employees who highly motivates them to join

the training process. In addition, the analysis also revealed

that the retailer industry must be able to use a new and improved

balance scorecard to evaluate the performance of an organisation.

            To be able to enhance motivation of employees to, the

retailer management should be able to implement performance

measurement system.  Accordingly, performance measurement is the

principal set of practices by which control is manifested in

organizations. Control here is defined as any process that is

used to align the actions of individuals to the interests of the

organization (1992). Under such a characterization, performance

measurement system through integrated balance scorecard is

expected to regulate both motivation and ability 1990). By using

performance measurement approach the company would be able to

formulate objective setting, formal performance evaluation, and

linkage between evaluation outcomes and development and rewards,

in order to reinforce desired behaviour among their employees

(1993). This system is cybernetic, with feedback from both

employer and employee driving modifications at each point in the

system.

. Being able to recognise the importance of measuring both

financial and non-financial indicators, it is noted that that the

ZARA must use a measurement tool known as the balanced scorecard.

Considering that financial and non-financial approaches are two

very different systems, applying one mechanism in place of the

company’s existing performance and evaluation means will entail

greater changes and adjustments. Moreover, some aspects in

traditional systems are lacking in the non-financial systems and

vice versa. Hence, the application of only one system will not

result to the maximization of the advantages of both systems.

Thus, the integrated approach or the application of the balance

scorecard in measuring performance appears to be better than the

other two methods.

The balanced scorecard is an innovative performance

measurement process that builds on the notion that reliance on

traditional financial measures is no longer adequate for firms

considering that other companies have realized the value of

intangible assets and performance indicators (2001, 2001).

Financial measures are outcome measures based on historical

results. As such, these lag indicators generally focus

management's attention on past actions and short-term performance

related to the management of tangible assets. In contrast, non-

financial measures, categorized as lead indicators, tend to focus

attention on actions that drive future results, creating value

for the long-term from such intangible assets as human capital,

customer relations, innovation in products, and highly efficient

operating systems (1996, 2001). A balanced scorecard combines

measures in such a way that management has access to key

financial and non-financial information that they need, while not

being inundated with abundance of information.

Customer, internal business processes, learning and growth

and financial factors are the four main perspectives of the

balance scorecard system. The focus of the customer perspective

is on the external environment, which aims to discover,

understand and stress on customer needs. Common measure used in

this perspective includes customer loyalty, customer

satisfaction, and customer retention ( 2002). The internal

business processes perspective focuses on the company’s internal

environment including its value chain operations and innovation

processes. Common measures used for this perspective are

expenditures on research and development, new product sales,

cycle time, throughput efficiency and productivity. On the other

hand, the learning and growth perspective provides the

infrastructure or foundation required to meet the goals of the

other two operational perspectives. The common indicators are

employee satisfaction, voluntary turnover and dollars spent on

training.  Finally, the financial perspective is focused on

shareholders.

In general, balance scorecards are advantageous as it help

create management mechanism, which enhances the success of the

organization. Specifically, balance scorecards help in the

creation of a commonly understood and precisely identified

strategy within the management team. It also provides an

incorporated view of the strategy within all sectors of the

organizations. Balance scorecards also encourage the

participation and contribution of the employees as well as

present a balanced combination of measurement, which enable

easier management towards success. 

With these main perspectives, it is clear why the balanced

scorecard system is suitable for ZARA Company. The company

implemented change in its operations in order to overcome the

internal and external pressures affecting it. In particular, the

company intended to resolve its problem with business

competition, customer relations and employee performance. The

components of the company’s change were directed to the

achievement of these objectives. By training the employees how to

perform their jobs and serve customers more effectively, the

company was able to improve its sales as well as its appeal to

the customers. The management and the subordinate staff now share

a more collaborated relationship. All these results obtained from

the performance measurement system of the company clearly stress

that the company had been successful in improving its level of

competitiveness.

 

Conclusion and Recommendation

It is noted that the retailer offers various services and

these may also indicate the use of measures, aspects that are

directly or indirectly influential on the retailer results.  In

this regard, it is also recommended that the management of ZARA

must also measure customer’s loyalty and customer’s satisfaction

as part of its performance or productivity measurement. The

return rate of guests may be calculated to see the loyalty and

perception of the service.  Loyal customers are an asset to a

business and can be encouraged with different schemes.  There are

also studies which indicate it can be as much as six times as

expensive in marketing terms to attract a new customer as it is

to retain an existing customer

Customer satisfaction is also a measure than can be used,

this is pertaining to the return customer in order to estimate

the impact the retailer has created on a new customer in the

competitive environment.  Other measurement may include the

ratios, for example the number of calls answered by a

receptionists each hour, the number of room cleaned by a chamber

maid per hour, or average cleaning time over room, the usage of

towels per room, the number of breakfasts severed as a ratio of

the guests and so forth. Individually all of the measurements may

be seen as small, yet they give an indication of potential room

for improvements for the use of resources, either physical or in

terms of human labour.

The performance measurement through the use of cascaded

balance scorecards are also recommended for the company since it

emphasizes that the development of human potential and abilities

must be unleashed so as to create a good organization whereas.

This concept suggests that the outcome of effective human

resources is not dependent on knowledge alone but on performance

as well. Within the performance paradigm, there are two

significant factors that may be used for analyzing the

implementation. One of which is the training or learning activity

factor.

Another related factor of the integrated balance scorecard

is performance appraisal. This enables the company to assess

their employees individually based on various aspects such as

daily work output, quality of work, work attitudes and overall

performance ( 1994). This helps the company identify their

employees’ strengths and weaknesses. The employees on the other

hand, will be able to recognize their strengths and weaknesses.

Included in this aspect is the provision of various forms of

recognition for hard working and deserving employees.

Through performance appraisal, the company motivates its

employees to work more productively and efficiently.  Performance

management assures that employees will be able to see how their

work contributes to the achievement of the organisation's overall

goals; how they are managed should encourage them to want to make

a better contribution; they should be helped to develop their

skills and talents so that they can improve their contributions;

and those contributions should be recognised and rewarded in ways

that make employees feel good about themselves, their jobs and

their employer (1994).

Furthermore, part of cascaded and integrated balance

scorecards for the ZARA is the ability of the management to give

employee feedback. Through employee feedback, the management are

being aware of the needs of their employees. These needs are

being analysed so as to manage performance effectively. When

individual needs such as growth and strength, coupled with job

characteristics or job scope (1993), have a matching existence

within a structure then the levels of job performance and

satisfaction are expected to be high. Upward and lateral

communication through an effective employee feedback system has

significant effect on job performance and job satisfaction when

the matching existence with performance management is present.

Performance measurement has long been used by the various

firms to assess different business factors. In general, three

methods are being used to measure performance: financial, non-

financial and integrated approaches. While these approaches have

their own advantages and drawbacks, the goal of their application

remains one and the same. Through the beneficial effects of

performance measurement, businesses are able to create successful

strategies towards success. All in all, it can be said that in

order for an organisation sustain its competitive performance,

they must use effective and appropriate performance measurement

approach.

 

Case study: Zara's Vertical Supply Chain

Background

            Inditex, one of the worlds largest fashion distributors,

has eight major sales formats - Zara, Pull and Bear, Massimo

Dutti, Bershka, Stradivarius, Oysho, Zara Home y Kiddy's Class-

with 3.147 stores in 70 countries around the world.

            Inditex Group is comprised of over one hundred

companies associated in textile design, manufacturing and

distribution. The achievements of the company and the uniqueness

of its management model, which is based on innovation and

flexibility, made Inditex one of the largest fashion distribution

groups in the fashion industry.

            The company’s fashion philosophy -creativity and

quality design together with a rapid response to market demands-

has resulted in fast international expansion and excellent

response to sales concepts.

            The first Zara shop opened in 1975 in A Coruña (Spain),

the city that saw the Group's early beginnings and which is now

home to its central offices. Its stores can now be found in the

most important shopping districts of more than 400 cities in

Europe, the Americas, Asia and Africa

            As of today, Inditex is probably the fastest growing

fashion retailer in the world, with over 3,100 stores, in over 70

countries around the world, and Zara is around 1,000 of those

stores. Zara, as a member of the one worlds largest fashion

distributor, has a high response when it comes to their supply

chain. Latest fashion designs are easily supply to all the

stores/branches of Zara worldwide, in just a matter of two weeks.

Vertical Supply Chain

            Zara operates using a vertical supply chain, which is

a unique strategy in the fashion industry. Vertically integrated

business undertakes a variety of activities from designing,

manufacturing, sourcing, and to distribution to retail stores

around the world. A company that operates in a vertically

integrated strategy has total control of various business

activities, such as designing, manufacturing, sourcing, and to

distribution to retail stores. This gives the company total

business management.

            “While retailers concentrate their money and efforts on building a brand image

through advertising campaigns, their lack of control over sub-contractors has left many

open to accusations of using sweatshop labour when unacceptable practices are

uncovered at factories producing their merchandise.”     

            Zara is driven by introduction of new designs and

releasing new products in just a short time. The strategy is to

produce and release products in number or limited in a store, a

store may only receive ten of the new product. This strategy

closely emulates a ‘make to order environment’. The idea is

releasing a design in limited number or exclusive. This strategy

this builds up customer’s anticipation of the next product or

design to be release, making the next product highly anticipated

by customers.

            Zara does not focus in advertising their product,

because Zara does not focus in building brand image, there target

is production and the customer’s anticipation of their product.

Instead on focusing their strategy in product advertisement, the

company focuses on product design and quality.

            Below is a supply chain barometer of Zara, this

supply chain barometer shows the balance between the company’s

in-house and external operations. The balance in fabric supply

and manufacturing of the product itself contributes in the

company’s success. Not all the company’s in-house resources are

use. A large percentage of the company’s fabric supplies are use

in other brands. While in manufacturing, Zara has the most

products manufactured.

 

 

 

 

            All the products of Zara are transported from the

company’s main central site in Spain. Most of the products are

shipped from the “A Coruña depot” (Zara Logistica). All stocks

are not held for long periods and are sent out to all the Zara

stores twice a week.  For international deliveries, the stocks

are delivered to the border of Spain, and the logistic provider

in charge for that country takes over the distribution to the

stores.

            The ideas and design of a product came from the

designer. The designer gets the idea of what product to design

next by means of its sales from stores and customers feedback and

comments. The designers based their ideas in product designs from

previous product sales. The feedback and comments of customers a

bout a product is also considered in the design.

            Below is a diagram that shows the cycle how a product

is made. The company’s success is because of the total control in

every aspect of the business, from designing, to production, and

to distribution. By having total control of the entire process,

the company can quickly react to the fast changing fashion trend

and customer taste, this provides the company an idea of the

latest fashion trend. Having total control in all business

activities allows Zara to produce and release new design in a

short span of time.

 

  

 

            All of the functions of the business continuously

works together to produce new collections and designs which are

updated and completed on a weekly basis, this allows the company

to release new product easily. Zara shop managers report to

designers in La Coruña in a daily basis on what has and has not

sold. This report is used to determine if a product is to be kept

or altered, and whether new lines are to be created. This happens

in just a few days. The designers mostly rely on product sales,

feedbacks and comments from customers.

            Stores order their stocks from an offer they received

twice a week from the commercial manager who then orders the

stock to the logistic who handles the stock. Stores are ranked

according to sales and forecast accuracy; this rank will

determine the level of priority for store order. If a product is

not selling, the company stops the manufacturing. By this means

no stock will over pile. If a product is not selling a certain

store the company stops manufacturing the product, this avoids

over stock of non-selling products.      

            Each store has different customers or segments. Each

country and regions have different values. These segments have

different values in terms of their product choice. Shoppers

addicted to the Zara brand know exactly when the deliveries will

be arriving at their local shop and some even turn up before

opening time on delivery days to be the first to pick up the

latest lines. Because products are released limitedly, customers

regularly visit a store to see if a new stock has arrived. Some

product in a region may not be high selling unlike in some

region. In Asian market some design are kept and maintain, while

in most European country where fashion is at constant change

design must be constantly new therefore releasing new product

constantly. Customers in other region tend to embrace what is the

latest design in Europe, being the fashion capital of the world,

these proves that a product can be market in other region such as

Asia.

 

 The Competition

            “H&M Hennes & Mauritz AB (H&M, a Sweden-based Company

active in the retail clothing industry. The Company, like Zara,

is engaged in product design, manufacturing and retailing of

clothing and as well as accessories. The company’s products range

from various clothing, which including underwear and sportswear,

for men, women, children and teenagers, and cosmetic products and

accessories. The Company has 20 production offices around the

world, buying goods from approximately 700 independent suppliers

in and around Asia and in Europe. H&M operates 1,345 retail

outlets in 24 countries with its largest markets in Germany,

Sweden and the United Kingdom. During 2006, H&M opened 168 new

stores, primarily in the United States, Spain, Germany, France

and Canada, and launched of online sales outside the Nordic

region. The Company's head office is placed in Stockholm, Sweden.

            Competition in the fashion industry has always been

tough. H&M Hennes & Mauritz AB, has always been Zara competitor

in this industry. H&M has been in business since 1947, while Zara

started business in 1975. Experience can play a big role in

business, but strategy has been the edge of Zara to gain

competitive advantage in the business. Zara has gone against the

conventional strategy where other company dare not pursue. The

strategy of Zara is unconventional, other companies in fashion

retail uses a different strategy. Zara’s strategy works in making

the products of the company more anticipated by the customers.

The strategy also gives the company the full responsibility in

managing all the business processes; form designing, to

production, to shipment, etc. This allows the company to focus on

each process, making each process vital.

            "Investment banks used to say that this model (vertical market strategy) did not

work, but we have shown that it gives us more flexibility in production, sales and stock

management," said Inditex chief executive

            Early this year, Zara’s market performance is

inclining in a steady phase. This shows that Zara’s market

performance against their competitor is doing well. The tables

below shows both Zara and H&M marketing performance in the start

of this year alone:

 

 Quarterly

(Jan '07)

Annual

(2007)

Annual

(TTM)

Net Profit Margin 14.66% 12.32% 12.32%

Operating Margin 19.05% 16.56% 16.56%

EBITD Margin - 21.84% 21.84%

Return on Average Assets 26.39% 18.46% 18.46%

Return on Average Equity 45.06% 31.57% 31.57%

Employees 69,240 - -

Table1: Key Stats & Ratios (ZARA)

 

 

 Quarterly

(Feb '07)

Annual

(2006)

Annual

(TTM)

Net Profit Margin 13.72% 15.79% 16.11%

Operating Margin 19.22% 22.36% 22.75%

EBITD Margin - 24.74% 25.15%

Return on Average Assets 25.05% 31.41% 31.20%

Return on Average Equity 31.74% 40.21% 38.91%

Employees 40,368 - -

Table2: Key Stats & Ratios (H&M)

        The table shows that as of the start this year Zara has

been very productive in terms of return of average assets and

equity as well, against its competitor H&M. This shows that the

company’s starting performance is at a good start. And it will

likely continue to be productive in the long run.

 

Customer Value

            Consumers respond differently in every country. Every

customer in different country, have different values. Some

customers value quality more than price, and vice versa. Because

customers respond differently to a product, it is a vital key to

under stand the different response and customer values in order

to build a successful retail brand across borders. Zara,

understands the different response of customer in every territory

the company move into. Understanding the different response of

customers allowed Zara to determine the demands of customers and

to makes products based on such demands.     

             “The , a quarterly journal; published on 2002,

compared British, French, and Germen shoppers. Comparing more

than 1,500 consumers' ratings of how well a store performed with

the store choices these consumers actually made, the research

concluded that what the shoppers say and what they do are not

always the same. For example: shoppers don’t shop in a particular

store but because their friends do, they tend to shop in the same

store as well. This means that friends’ shopping choices turn out

to be a powerful motivator.

            Consumers fall into three (3) different segments.

First are customers who care for service/quality, this type of

segment care most about the variety and performance of products

in stores and the service that the store provide. Next are the

price/value customers who are concerned about spending their money

wisely. And the affinity customers who primarily seek store that

suit people like themselves. This shows the big influence of

friends and the society that a customer belongs to, to the

customer’s personal decision.

            French customers give emphasis on service and

quality; the German, price and value are more important; while

the English, Affinity. These differences does not conclude that a

company that give emphasis to price and value in their product

and services will only succeed in German market, this suggest

that the size of value-oriented market is different from one

country to another. Understanding the reasons and factors what

drives customer loyalty in each geographic market can have

enormous financial benefits to the company. Zara understands the

values of customers in different country, this give the company

an advantage and knowledge on what products and services that a

segment demands in that country.

 

 

Survey results

What do European consumers value?

   

 

 

 

 

 

 

 

Percent of

respondents      

Clothing      

 

Service/

Quality

customers

Price/value

customers

Affinity

customers

France 50% 32% 18%

Germany 16% 39% 45%

United Kingdom 15% 19% 66%

Table 3: Percentage of European customer value.

source:  1,500 customers' ratings of 40 retail clothing brand in France, Germany, and

United Kingdom

 

            Different values of customers in different country

suggest that the strategy used by the company in a certain

country, may not be successful to another country. That is why it

is very important to distinguish the different values of each

market, in order to develop a strategy that will be suitable to

the market trends and demands. Having a competitive marketing

strategy gives a company a clear focus of exactly what the

company must execute in order to gain competitive advantage and

succeed.

            Competition is a natural aspect of business. It is

staying on top of the consumer preference. Companies must

continuously be productive, providing customers with best-quality

product at competitive price while making profit to be successful

competitors in long run.

 

 

Supply chain refers to all the value adding operationalactivities involved with supplying to an end user with

a service or product

Introduction

            Zara is one of the most notable fashion stores in the

world. Notable for its products and notable for its excellent

supply chain management. This paper discusses the supply chain

management at Zara, tackling the different areas of supply chain

and their contribution to the company’s success.

 

Supply Chain Management

            Supply chain refers to all the value adding

operational activities involved with supplying to an end user

with a service or product ( 2002).

            A supply network is defined by  (1992) as an

interconnection of organizations which relate to each other

through upstream and downstream linkages between the different

processes and activities that produce value in the form of

products and services to the ultimate consumer (cited in  2002).

(1985) is among the earliest influences upon an integrated supply

network. According to, the organization’s value chain is embedded

within a value system comprising suppliers and buyers. The

linkages within this chain or system provided the building blocks

of competitive advantage. Conversely, supply chain management

involves partnerships that are developed between organizations

performing adjacent, linear steps in the chain. The supply chain

is viewed as a whole rather than a set of fragmented parts in

order that activities, the basic units of competitive advantage,

can be configured, confined and performed in different ways to

rival chains (1996).

            Supply chain or value chain management is composed of

the operational or tactical activities and can be defined as

‘managing the entire chain of raw material supply, manufacture,

assembly and distribution to the end consumer ( 1989 cited in 

20002).  (1998) defines supply chain management as the management

of upstream and downstream relationships with the suppliers and

customers to deliver superior consumers value at less cost to the

supply chain as a whole.

 

Components of the Supply Chain

            The supply chain has four basic components:

o Production – Businesses focus on how much to produce, where

to produce it and which suppliers to use.

o Inventory – Businesses decide where to store their products

and how much to store.

o Distribution – Businesses address questions about how their

products should be moved and stored.

o Payments – Businesses look for the bets ways to pay

suppliers and get paid by customers.

 

Elements of the Supply Chain

o Structures - these are the organizational units within the

supply chain that interact. They include a company, its

suppliers, its customers, distribution channels, design and

engineering centres, manufacturing and service centres.

o Processes - the operational activities that transform inputs

into outputs. These can involve demand and supply planning,

forecasting, sourcing, purchasing, manufacturing and service

operations, logistics, order entry, materials management,

and new product or service development.

o Linkages - connecting process to structure via

communication, usually in the form of shared information and

continuous communication ( 2002).

 

Inditex

            In 1963,  started a small company in Spain that

manufactured women’s pajamas and lingerie products for garment

wholesalers. In 1975, after a German customer cancelled a sizable

order, the firm opened its forts Zara retail shop. The original

intent was simply to have an outlet for cancelled orders but the

experience taught the firm the importance of a marriage between

manufacturing and retailing – a lesson that guided the evolution

of the company ever since.

            From a starting point of 6 stores in 1979, the

company established retail operations in all the major Spanish

cities during the 1980’s. In 1988 the first overseas Zara store

opened in Porto, Portugal, followed shortly by New York City in

1989 and Paris in 1990. But the real ‘step-up’ in foreign

expansion took place during the 1990s when Inditex entered 29

countries in Europe, the Americas and Asia (particularly during

1998 to 2001 when it entered 21 of these 29 countries). In

parallel with its overseas expansion, Inditex diversified its

retail offering by adding and acquiring new brands in order to

target different customer segments. Each brand operates

independently, with its own stores, ordering system, warehousing

and distribution system, subcontractors, and organizational

structure (Inditex 2006).

            Zara is the largest Inditex division – accounting for

more than 75 percent of total Inditex sales.

 

Zara at a Glance: Operations and Supply Chain Management

            The first Zara clothing store opened in 1975 in Spain

as a small retailer selling men’s and women’s clothing. Since

then Zara chains have grown into retailing giants with almost

1000 stores worldwide and an impressive sales record. The success

of Zara is partly to do with the appeal of its men’s and women’s

and children’s fashions and accessories that display unique style

but at real world prices. But it is also partly as a result of

their collaborative, digital networks that link Zara with its

suppliers and customers. These advances have enabled Zara to

deliver tailored products quickly and reliably, creating what the

company terms a ‘value net’ for all the firms in the supply

network. This value net is a key part of the operations strategy,

allowing customer choices to be simultaneously transmitted to all

supply partners who then deliver components as need by other

partners. The company at the center of the operations strategy

coordinates all activity, provides continual updates to all

players, and captures significant value for its efforts.

 

            The particular operation strategy used by Zara helps

it respond quickly to shifts in customer demand and build a

powerful brand. Zara estimate that it takes only two weeks to

convert design ideas into products on the shelf to satisfy its

young, hip, clientele with fashion for the masses. Store

employees regularly tour urban hot spots looking for new trends

and reporting back to designers. Knowing what’s in today may be

out next month is the secret of the success of the Spanish

retailer as is the ability to apply operations strategy that puts

new fashion concepts on the shelf twelve to fifteen days. As part

of this strategy, capital-intensive steps are executed in

factories owned by Zara, while labor intensive operations are

outsourced to small shops and manufacturers with whom Zara have

collaborative partnerships that include providing them with the

necessary technology and logistics capabilities. Customers seem

to relish the results of this high velocity operation and are

often seen queuing outside stores on designated delivery days – a

phenomenon dubbed as ‘Zaramania’ ( 2002).  

 

 

 

Supply Chain at Zara

 

For Zara stores to be able to offer cutting edge fashion at

affordable prices requires the firm to exert a strong influence

over almost the entire garment supply chain: design, purchasing,

production, distribution, and retailing.

 

Design and Order Administration

            The design and order administration at Zara is very

effective and efficient. The company ensure product quality by

designing its own products. Zara has almost 300 people working in

its headquarters in Spain. These talented people include

designers, specialists and buyers. Together they produce designs

for approximately 40,000 items per year from which 10,000 are

selected for production. Unlike their industry peers, these teams

work both on next season’s designs and, simultaneously and

continuously, also update the current season’s designs. Extensive

feedback from the store network also forms an integral part of

the design process. Women’s, men’s and children’s designers sit

in different halls in a modern building attached to the Inditex

headquarters.

1. Designers – the supply chain starts with the designers. Based

on information and inspirations gathered from different resources

such as trade fairs, fashion shows, magazines and more

importantly customer feedbacks, the designers draw out design

sketches by hand and then discuss them with colleagues –

including market specialists, planning and procurement people.

This process helps to retain an overall ‘Zara Style’. The

sketches are redrawn using a CAD system where further changes and

adjustments, for better matching of weaves, textures, and colors

are made. Before moving further through the process, it is

necessary to determine whether the design can be produced and

sold at a profit. The next step is to make a sample, often

completed manually by skilled workers located in the small sample

making shop in one corner located in the small sample making shop

in one corner of each hall. If there are any specific questions

or problems, they can just walk over to the designers and discuss

and resolve them on the spot.

2. Market Specialists – Each market specialist has responsibility

for dealing with specific stores. These market specialists have

wide experience. The market specialists work in close contact

with store managers, especially by phone, discussing sales

orders, new lines and other matters. Stores rely heavily on

discussions with Market Specialists before finalizing orders.

3. Buyers – Final decisions concerning what products to make,

when, and in what volumes are normally made collectively by the

relevant groups of designers, market specialists, and buyers and

after the decision is taken, the buyers take charge of the total

order fulfillment process. The buyers are responsible in planning

procurement and production requirements, monitoring warehouse

inventories, allocating production to various factories and third

party suppliers and keeping track of shortages and oversupplies.

 

Production

           

1. Suppliers – Zara manufacture approximately 50 percent of its

products in its own network of 22 Spanish factories but use

subcontractors for all sewing operations. These factories

generally work a single shift and are managed as independent

profit centers. The other half of its products are procured from

400 outside suppliers, 70 percent of which are in Europe and most

of the rest in Asia. Many of the European suppliers are based in

Spain and Portugal, and Zara exploit this geographical proximity

in order to ensure quick response to Zara orders which is

critical for fashion products. From Asia, Zara procure “basic”

products and those for which the region has a clear cost or

quality advantage. With its relatively large and stable base of

orders, Zara is a preferred customer for almost all its

suppliers.

            For its in-house production, Zara obtain 40 percent

of its fabric supply from another Inditex-owed subsidiary,

Comditel (Zara account for almost 90 percent of their total

sales). Over half of these fabrics are purchased undyed to allow

faster response to mid-season color changes. To facilitate quick

changes in printing and dyeing, Zara also work closely with

Fibracolor, a dyestuff producer part owned by INditex. The rest

of the fabrics come from a range of 260 other suppliers, none

account for more than 4 percent of Zara’s total production in

order to minimize dependency on single suppliers and encourage

maximum responsiveness form them.

 

2. Procurement and Production Planners – The make or buy

decisions are made by the procurement and production planners.

The key criteria for making this decision are required levels of

speed and expertise, cost-effectiveness, and availability of

sufficient capacity. If the buyers cannot obtain desired prices,

delivery terms, and quality from Zara factories, they are free to

look outside.

 

3. Subcontractors - After in-house CAD controlled piece cutting,

Zara use subcontractors for all sewing operations. The

subcontractors themselves often collect the bagged cut pieces,

together with the appropriate components (like buttons and

zippers) in small trucks. There are some 500 sewing

subcontractors in very close proximity to   (in the Galicia

region) and most work exclusively for Zara. Zara closely monitor

their operations to ensure quality, compliance with labor laws,

and above all else adherence to the production schedule.

Subcontractors then bring back the sewn items to the same

factory, where each piece is inspected during ironing (by machine

and by hand). Finished products are then placed in plastic bags

with proper labels and then sent to the distribution center. A

system of aerial monorails connects ten of the factories in La

Coruña to the distribution center. Completed products procured

from outside suppliers are also sent directly to the distribution

center. Zara use a sampling methodology to control the incoming

quality.

 

 

 

Distribution

 

1. Distribution Center – all products pass through Zara’s major

distribution center in La Coruña. The 5-storey, 50,000 square

meter distribution center employs some of the most sophisticated

and up-to-date automated systems. With a workforce of 1200, the

distribution center normally operates four days per week with the

precise number of shifts depending on the volume of products that

have to be distributed. Orders for each store are packed into

separate boxes and racks (for hanging items) and are typically

ready for shipment 8 hours after they have been received.

 

2. Logistics (Contractors) – In 2001, the distribution center

shipped 130 million pieces. 75 percent of these shipments were to

stores in Europe. Fashion garments represent around 80 percent of

Zara’s products and the rest are more basic items. Contractors

using trucks bearing Zara’s name pick up the merchandize at La

Coruña and deliver it directly to Zara’s stores in Europe. The

trucks run to published schedules. Products shipped by air are

flown from either airport in La La Coruña or the larger airport

in Santiago. Typically, stores in Europe receive their orders in

24 hours, the United Sates in 48 hours and Japan in 48 to 72

hours. Compared to similar companies in the industry, shipments

at Zara are almost flawless – 98.9 percent accurate with less

than 0.5% shrinkage.

 

 

 

Retailing      

1. Store/Customer

            Stores usually place their orders and receive

shipments twice per week. Orders have to be placed at pre-

designated times.

            The store plays an important role in the Inditex

business model that ranges from production up to end

distribution. The overall experience of the customer in the store

in considered. Apart form the fashion supply, the interior design

of the store, coordination of collections, maximum care over

window displays and customer care are some of the elements that

guarantee this experience. The stores where Zara concentrates the

majority of its investment are the essence of the group’s chains,

for which reason the location in the main commercial areas of

cities and care over interior design take on vital importance for

the company. The store is Zara’s main image vehicle.

            Apart from its location, its window designs and

interior design, customer care is one of the elements that

Inditex takes most care of: its relationship with consumers.

Personnel receive specific c training on customer care as one of

the main intangible values of the store. Inditex establishments

are thought out so that the encounter between the customer and

fashion can take place in a pleasant environment. Store personnel

with supervisors as the main drivers of quality of service,

encourage freedom and comfort of the visitor by taking an active

role in the shopping process exclusively when the customer

requests this ( 2007).

 

 

 

Zara’s Supply Network

            Zara can move from design to in-store availability in

a matter of weeks as a result of closely connected, highly

synchronized arrangements with out-sourced suppliers.

 

            Zara relies on a local supply network, which it

largely owns and controls. That network can design and replenish

hot-selling fashion products in the stores within three weeks.

Zara’s supply network entails a near-vertically integrated

company the owns retail, products design, dyeing, and fabric

cutting operations. Only sewing operations are outsourced (2006).

 

            Zara use flexible arrangements with a wide supply

base. Zara has achieved high levels of customer responsiveness by

working closely with specialist, often small, manufacturers. The

strategy at Zara is that only those operations which enhance cost

efficiency through economies of scale are conducted in-house

(such as dyeing, cutting, labeling and packaging). All other

manufacturing activities, including the labor intensive finishing

stages, are completed by networks of more than 300 small

subcontractors, each specializing in one particular part of the

production process or garment type. These subcontractors work

exclusively for Zara’s parent, Inditex. In return, they receive

the necessary technological, financial and logistical support

required to achieve stringent time and quality targets. The

system is flexible enough to cope with sudden changes in demand (

2004).

 

Supply Chain Performance Measure

 

 

 

 

Order Lead Time

            The total order cycle time, called order delivery

cycle time, refers to the time elapsed in between the receipt of

customer order until the delivery of finished goods to the

customer. The reduction in order cycle time leads to reduction in

supply chain response time, and as such is an important

performance measure and source of competitive advantage.

            Zara produces clothes that resemble the latest

couture creations, but they beta the designers to market. Because

they use less expensive fabrics, they can also provide the

product at a lower price. To achieve this type of competitive

advantage, Zara controls most of its supply chain, by managing

all design, warehousing, distribution, and logistics functions.

 

Operational Level Measures

            Operational level measures include ability in day to

day technical representation, adherence to developed schedule,

ability to avoid complaints and achievement of defect free

deliveries.

            Zara design the organization, operational procedures,

performance measures and even office configurations to make

information and product transfer easy. Because Zara’s merchandise

is produced in small quantities, provided on predictable

schedules, and displayed in the stores for only a short amount of

time, customers visit Zara stores more frequently. This has an

added advantage of helping Zara avoid the cost of advertising.

 

Effectiveness of Scheduling Techniques

            Scheduling refers to the time or date on which

activities are to be undertaken. Such fixing determines the

manner in which resources will flow in an operating system, the

effectiveness of which has an important impact on production and

thus supply chain performance.

            The scheduling techniques of Zara is very efficient.

o Centrally Managed Inventory – controlled and timely delivery

of clothing to all stores across the world

o Reduced Design Cycle Time – timely response to items that

sell well and ability to quickly alter or enter new designs

o Strong IT System – allows almost immediate communication of

sales and inventory information across enterprise

o Logistics and Distribution – clothes move within hours to

their destination, efficient scheduling of shipments

 

Flexibility of Delivery Systems to Meet Particular Customer Needs

            This refers to flexibility in meeting a particular

customer delivery requirement at an agreed place, agreed mode of

delivery and with agreed upon customized packaging.

 

Research Paper: The impact of low-cost companiesin the competition of fashion market industry: Acomparative case analysis of Zara and Topshop Company

 

Title

 

“The impact of low-cost companies in the competition of fashion market industry: A comparative case analysis of Zara and Topshop Company”

 

Introduction

 

Fashion industry market as of the present is growing and

is booming as there are sectors focused on the type of

business. But, how come low cost fashion companies do

impact in competition within the fashion industry? Is

there really an issue pointing towards these companies

such as Zara and Topshop? Fashion industry can have

greater demands from various customer types and due to

globalization, such low cost fashion companies can be in

to prove its worth in the fashion market. The research

can be used to determine underlying factors in such cases

to be taken from Zara and Topshop and thus, provide

awareness to the fashion business of such impact in the

market mostly, to those first class fashion companies.

 

 

 

 

 

 

 

Background

 

The problem can be that nowadays, low cost fashion

companies can possibly dominate the industry of today and

in the future and the situation for competition in the

fashion industry can amicably be on high demand on such

products and services and that there is evidence of

business risks as possible. The interest of the paper

will be to determine how low cost fashion companies

impact the competition within the fashion industry in the

aspect of its market stance. There should be awareness

and assessment on the presence of the two low cost

fashion companies, Zara and Topshop will be considered as

the focus for this study  

 

Relevant literature: This section will demonstrate your

knowledge of the literature and make the link with the

situation to be investigated. At this stage it will

indicate the key texts you will draw on.

 

A consumer preference for brands with a global image,

even when quality and value are not objectively superior,

has been proposed as a reason for companies to consider

global brands (Cited from, Shocker et al., 1994; Taylor

and Raymond, 2000). Therefore, Fashion Company needs to

identify the response of consumers worldwide to its

global advertising for such specific consumer segment.

For instance, the fashion industry for women is

particularly relevant in terms of examining the

feasibility of cross-national segmentation. Research

indicates that females tend to be more fashion conscious,

be more knowledgeable about fashion brands (Cited from,

Blyth, 2006), and read more fashion magazines than male

consumers (Cited from, Chamblee et al., 1993; Putrevu,

2004). This implies that marketers need to pay special

attention to women when expanding and advertising fashion

brands to international markets. The fashion industry is

characterized by a considerable amount of standardized

advertising. In fact, global advertising in fashion

magazines such as Vogue and Elle helps create the image

of a designer brand name for fashion goods, such as

apparel, accessories, and perfume, and has been used by

many leading firms (Cited from, Blyth, 2006).

Increasingly, some fashion marketers have discovered that

their advertising is directly linked to retail sales and

strong retail performance (Cited from, Callan, 2006).

 

 Fashion lifestyle segmentation

In recent years, it has been suggested that we are seeing

the emergence of a new group of consumers who have

similar preferences and buy similar brands that are

promoted globally as well as in local media. These new

consumers have been referred to as “global consumers,”

who exhibit similarities to people in other nations in

terms of lifestyle and consumption patterns (Cited from,

Hassan et al., 2003). Although differences abound in

music, values, and cultures, some have argued that

commercial advertising on mass media (TV, magazine, and

internet) has contributed to a global consumer culture,

particularly for global brands (Cited from, Arnold and

Thompson, 2005). In various contexts, it is important to

examine whether evidence really shows support for the

notion of global consumer context. Thus, again, it is

important to examine whether fashion segments cut across

national boundaries. Lifestyle segmentation has received

considerable attention in fashion products, such as

clothing, accessories, and sportswear. Fashion lifestyle

is defined as consumer attitudes, interests, and opinions

related to the purchase of fashion products (Cited from,

Gutman and Mills, 1982; Ko et al., 2006). In a study of

the female apparel market in the USA, Shim and Bickle

(Cited from, 1994) outlined three fashion lifestyle

segments: symbolic/instrumental users, who are younger,

innovative, fashion-conscious, and represent higher

social class level; practical/conservative users, who are

oriented more toward comfort and function than toward

fashion or appearance and are not likely to enjoy

shopping; and apathetic users, who tend to patronize

discount stores. In another study from the USA, Kim and

Lee (Cited from, 2000) identified six fashion lifestyles

– price-consciousness, fashion-consciousness, information

seeking, self-confidence, attitude toward local stores,

and time-consciousness and was related to different

segments that sought benefits from catalog shopping. As

Lee et al., (Cited from, 2004) divide TV home shoppers

into four segments based on fashion lifestyle the

aesthetic group, the economic fashion innovator group,

the showy uncritical group, and the fashion-uninterested

group and discuss their different responses to product

advertising on TV home shopping. Finally, Ko and Mok

(Cited from, 2001) found that fashion lifestyles have

significant effects on advertising effectiveness in an

Internet shopping context (Cited from, Ko and Park,

2002). The low cost companies can be guided by philosophy

of producing fashionable cheaply made clothing, but

adapts its clothing lines to each country and ensures

that stores are permanently restocked. To strengthen

brands that involve such mixture of fashion and

cheapness, there can be collaboration among celebrities

and famous designers available at low prices.

 

 

 

Thus, for instance, Hennes and Mauritz there can be the

support of singers such as

and Chanel designer

 have all worked with H&M and their collections have sold

out in hours. Hennes and Mauritz reported then, such

sales of €8.6 billion approximately $11.9 billion,

putting it slightly ahead of its nearest rival in the

clothing retail industry, Spanish group Zara, as the

principle remains the same: fashion and quality at the

best price. The emergence of international low-cost

fashion chains such as Hennes and Mauritz is linked to

shopping trends as the success of these brands is

evidently down to their low prices, which is the main

point. (Cited from, The Local, 2007 in Business Region

Goteborg)  The people and the environment where people

live in are affecting the changes in fashion. These

changes are influenced by celebrity culture, demand for

cheap, fast fashion and the ever-increasing demand to

help save the planet. Fashion brands realize the needs

and act upon it to keep people interested, and to keep

people from buying their brand. However, the regular

consumer doesn't know about seeding, so therefore she

believes that the celebrity has bought into a brand they

trust.

 

 

 

 

 

 

 

 

Zara is the flagship chain store for the Spanish Inditex

Group owned by Spanish tycoon  who also owns brands such

as Massimo Dutti, Pull and Bear, Stradivarius and

Bershka. The group is headquartered in A Coruña, Galicia,

Spain, where the first Zara store opened in 1975. Today,

Inditex is probably the world's fastest growing retailer

with over 3,100 stores around the world in over 70

countries the Zara format taking around 1,000 of those

stores. In March 2006, the group overtook Sweden's Hennes

& Mauritz to become Europe's largest fashion retailer.

For instance, it is claimed that Zara needs just two

weeks [1] to develop a new product and get it to stores,

compared with a nine-month industry average, and launches

around 10,000 new designs each year. Zara has resisted

the industry-wide trend towards transferring production

to low-cost countries. Perhaps its most unusual strategy

was its policy of zero advertising; the company preferred

to invest a percentage of revenues in opening new stores

instead.

 

Zara was described by Louis Vuitton fashion director as

"possibly the most innovative and devastating retailer in

the world". Zara has also been described as a "Spanish

success story" by CNN The clothing industry followed

design and production processes that required long lead

times, often up to six months, between the initial design

of a garment and its delivery to retailers. This model

effectively limited manufacturers and distributors to

just two or three collections per year. Predicting

consumer tastes ahead of time presented inherent

difficulties, and producers and distributors faced the

constant risk of becoming saddled with unsold inventory.

The company's instant fashion model, which completely

rotated its retail stock every two weeks, also encouraged

customers to return often to its stores, with delivery

day becoming known as "Z-day" in some markets. The

knowledge that clothing items would not be available for

very long also encouraged shoppers to make their

purchases more quickly. An article in Businessworld

magazine describes Zara's fashion strategy as follows:

"Zara was a fashion imitator. It focused its attention on

understanding the fashion items that its customers wanted

and then delivering them, rather than on promoting

predicted season's trends via fashion shows and similar

channels of influence, which the fashion industry

traditionally used."[11] Shortening the product life cycle

means greater success in meeting consumer preferences.[13]

If a design doesn't sell well within a week, it is

withdrawn from shops, further orders are cancelled and a

new design is pursued. No design stays on the shop floor

for more than four weeks, which encourages Zara fans to

make repeat visits. An average high-street store in Spain

expects fans to visit three times a year. That goes up to

17 times for Zara.[14]

 

Zara’s success story

While retailers concentrate their money and efforts on

building a brand image through advertising campaigns,

their lack of control over sub-contractors has left many

open to accusations of using sweatshop labor when

unacceptable practices are uncovered at factories

producing their merchandise. The company's success lies

in it having total control of every part of the business.

It designs, produces and distributes itself. By

controlling the entire process from factory to shop

floor, Zara can react quickly to changing fashion trends

and customers' tastes, providing a "newness" that has

taken Europe by storm. Shoppers addicted to the Zara

brand know exactly when the deliveries will be arriving

at their local shop and some even turn up before opening

time on delivery days to be the first to pick up the

latest lines.

The company's success is proof that it is still possible

to build a massive brand by doing no more than meeting a

market need.  It has achieved this without any

advertising or promotion and without outsourcing its

manufacturing to countries where labor is cheap.

CNN.com Europe Business

The Product Line Of ASOS Sample Paper

Executive Summary

            ASOS is known of the most recognized online clothing store

in the United Kingdom. It offers products that people often see worn

by celebrities. As such, many people are encouraged to try out their

items. In addition, the prices of their products are relatively lower

compared to high street fashion. Because of these along with other

factors, ASOS was able to grow. With the growth of ASOS over the

years, it is important to ensure that it can be sustained. The fact

that online shoppers and traditional shoppers differ in terms of

concerns and behavior, it is critical for ASOS to study the purchasing

behavior of their market segment to determine the kind of strategy

that they need use to ensure success now and in the future. This

research focuses on the various aspects of online retailing in the

hopes of investigating the purchasing behavior of ASOS customers and

formulating recommendation on how to keep the margin profit of the

company on increasing.

            For the past 50 years, the retail industry has been under numerous changes (Braatz, 2002). For example, the 1950’s saw downtownsas the center of retailing. People would often go downtown to avail ofvarious products and services. This products and services included clothing, food, hardware supplies and banking services. A decade later, a group of retailers started offering their products and services in large department stores. The idea is to provide convenience to the shoppers. By creating a place were various retailers can offer their products and services, shoppers will no longer have to make several trips to different locations in order to

purchase the things that they need. This means that retailers hoped tocreate a one-stop shop for their customers. As a result, big names such as Wal-Mart and K-Mart made big names in the retail industry. On the other hand, downtown or small scale and specialized retail outletsexperienced a decline in the 1970s and 1980s (Braatz, 2002).

            From the late part of 1980s to the early years of 1990s, a

new kind of retailing came in being. Home TV shopping networks as well

as warehouse clubs became very popular among consumers. If one-stop

department stores aimed to provide convenience to their customers,

Home shopping networks brought the idea of convenience to a completely

new level. Instead of encouraging customers to drive to their stores,

retails brought the stores inside homes and purchasing the desired

products is as easy as calling a toll free number. On the other hand,

warehouse clubs offered customers the opportunity to buy products in

bulk and at discounted prices. Costco and Sam’s Club are some of the

warehouse clubs that earned success (Braatz, 2002).

            The changes within the retail industry continued well into

the late part of the 1990s. Along with the success of internet,

retailers were quick to recognize surfing the web as well as the use

of other internet applications was fast becoming incorporated in the

lives of many people around world. For this reason, they have decided

to bring their stores online. The move to utilize the internet was a

good decision in terms of marketing. Cable television took 25 years to

reach approximately 10 million people, while computers took seven

years to do the same. However, the internet was able to manage that

feat in just six months. This means that retail store will have more

chances of exposure if they have their own website.

            Since the utilization of the internet for retailing

purposes, many companies have been able to experience the benefits of

bringing their businesses online. With this, a need was created to

formulate strategies that focus on maximizing the potentials of

internet. Nowadays, ecommerce, ebanking and other forms of ebusinesses

are becoming a popular choice among the consumers and as such, it is

also becoming a popular form of business for companies. Increase in

sales are usually expected by companies when they launch an online

store of host websites that offers their products and services.

            In the retailing industry, etailing is also fast becoming

the choice of companies. One of the companies that concentrate in

advancing their etailing endeavor is As Seen On Screen 0r ASOS. They

offer clothing and other fashion related items that are similar to

designer fashion worn by celebrities but a t a lower price. They have

a website where they post the products that they currently have. In

addition, they show actual photos of celebrities wearing a similar

item of clothing that are being sold on their site.

            

Case Study

Despite the degree of success that ASOS was able to achieve over

the years of their operation, there are still problems that they need

to resolve in order to ensure the survival of their business. This is

the rationale behind this paper. This paper will be presenting the

conditions that ASOS are operating in as well as the various aspects

that they need to focus on in order to maintain  steady or increasing

follow of profit. These will be done in order to be able to formulate

recommendations that will help the specified company in addressing the

issues that surround their business. However, the findings of this

paper as well as the recommendations that will be formulated have the

possibility of being useful to other ebusinesses.

 

Statement of the Problem

            The problem of ASOS is generally related to the problem faced by most online retailers: the online consumer buying behavior. Not only does buying apparel online represent a new form of consumer behavior in the ‘computer-mediated shopping environment’ (Hoffmann andNovak, 1996), apparel online retailers also face intense competition. Attracting consumers with the limited resources available on the internet is a big challenge to online retailers like ASOS. Knowing theonline consumer behaviors will let the retailers and managers of these

companies formulate and develop effective strategies that will help increase the popularity and sales of clothing online.   

Moreover, ecommerce is an expensive business but is also proven

profitable once become effective. According to a survey, clothing

belonged to the top six categories of holiday gifts in the USA during

the 2000 Christmas season (eMarketer,2000)  and about 8.4% of the

total weekly online purchases in 2000 is the apparel category (Nelson,

2000). These results suggest that selling clothing online is an

effective business especially if a company has marketing strategies

that will help in the success of the online business.

According to a study of users who have bought products online,

there are five main reasons why people shop through the Internet.

These are convenience and ease of use; greater selection; better

prices; easier comparison-shopping; and no sales pressure (Hale,

1997).  On the other hand, there are also reasons why people are not

attracted to making purchases online especially when it comes to

clothing. The top four most frequently identified reasons why

consumers are not purchasing online are ability to judge quality,

security, privacy, and easier to purchase locally (GVU 1998 on Novak

1999).

Competitor Analysis

According to Proctor (2000), competition is important since it

affects the success of a business venture. Proctor added that

competition is more than just producing and distributing products and

services that matches the needs of the consumers. Competition is about

the company’s capability of positioning itself in the market so that

they will stand out among the rest in the perception of the consumers.

In the case of ASOS, they do not have any direct competitors when

it comes to clothing associated with celebrities. However, it is the

case that do compete with  other clothing retailing stores such as

Topshop and FIgleaves.com.

SWOT

Strengths

            The strength of ASOS is its utilization of the Internet.

Through the Internet, it has formed a definite market segment that is

composed of mainly Internet users. A firm that limits its attention to

fewer market segments can better serve those segments than those firms

that influence the entire market. Moreover, its core focus, which is

apparel, as worn by celebrities at affordable price gives them a

marketing edge for it attracts customers right away. It also gives

huge discounts and has broad category coverage.

Weaknesses

            Online retailing in general is getting bad publicity

nowadays such as poor delivery performance. Another weakness is that

ASOS cannot guarantee specific product or brand presence. Internet

selling is unlikely to be successful, as consumers like to try on

clothes and see the quality of fabric and workmanship.

Opportunities

Ecommerce channels now represent 11% of the total UK retail

business, and record numbers of products are being procured vie the

internet (Thomson et al, 2005). People are attracted by low prices and

convenience.  In addition, they have integrated their everyday

activities to technology and the Internet, including shopping. As the

number of working women, who are ASOS core customers, continues to

increase, they will not only need more clothes for work but are also

more likely to be financially independent to purchase clothes.

Threats

            Online clothing chains from overseas are successfully

invading UK and at the same time, branded apparel such as Diesel,

Guess and Zara are still popular among the market. Other purely online

fashion etailers such as Yoox.co.uk, Brandalley.co.uk are also their

main threats. Downturn in the economy could also cause buyers to cut

back on overall spending.

Product Strategy

            The product line of ASOS is defined. The company knows

exactly what they want to up out in their website. As the former name

of the company suggests, the product line of ASOS is composed of

clothing articles as well as other fashion related items that have

been seen on celebrity fashion icons or trendsetters. The company’s

decision to extend their product line to include beauty products can

still be deemed as within the original intentions of the company. This

is the case beauty products are now being considered by many, as a

fashion must. A good skin is needed in order to make a certain look

work.

            Since the products of the company focuses on products that

must be appealing to the eye of the customers in order to be bought,

visual merchandising is important in conveying the aesthetics of the

products that they are offering. Customers need to see that the

clothing items that are being offered in the website were indeed “as

seen on screen”. Like the conventional retail clothing outlets, ASOS

does have a window to display their products. The pages of their

website serve as the windows where their customers can see the

products. 

Positioning Strategy

            The target market segment of ASOS is as defined as their

product line. They target people who are eighteen to thirty years of

age and who are internet savvy. Based on the questionnaires prepared

and used for this research, the biggest bulk of ASOS customers are

eighteen to twenty-two years. This age group represents fifty-five

percent of the total ASOS customers. It is followed by people who

belong in the age brackets twenty-four to twenty-nine and thirty to

thirty-five who twenty percent of the ASOS customer population each.

Lastly, people who are thirty-six to forty-two years old complete the

population representation five percent of the total.

            The result of the survey concluded that ASOS targeted the

right age group for the products. This is the case since the surveyed

revealed that eighteen to thirty year old customers are more open to

buying the products that ASOS offers. Another reason for the bulk

customers on the said age bracket can be attributed to the fact that

people within this age group are more adept at with using computers as

well as navigating the internet. In addition, they are also the ones

who are part of the corporate world where everything is fast-paced

that they do not have the time to go down town and shop for the

clothes and other fashion items.

            In relation to gender, eighty percent of ASOS shoppers are

women, while only two percent are male as shown on figure 3 below.

This is still according to the survey conducted for this research.

This may be the case since most of the items that are being offered

online are for women. In addition, the marketing activity of ASOS

focuses on disseminating information to more women than men. 500,000

emails are sent to females twice a week compared to 100,000 emails

sent to males only once a week.

Offer Strategy

            The success of ASOS is being owed to their ability to

offer trendy clothes at significantly lower prices. However, there are

still other factors that needs to be considered when discussing the

success of ASOS as an online retail clothing store. Aside from the

price of the products, the seasonability of the products being offered

is also crucial. It is a fact that the fashion industry is always on

its toes when it comes to innovation. Various collections come out on

a regular basis depending on the season. There are winter and summer

collections as well as spring and fall collections.

Timing Strategy

            Based on the discussion earlier, the sales of ASOS

increased significantly during the holiday season of 2004. This is the

case because orders for products that will serve as gifts were in

demand. In addition, a series of events take place during the

holidays. Family reunions and countless parties are set to happen

during this time of the year. This means that people will always be on

the look out for clothes that they will be able to use during these

events.

            However, it is also expected that during the holiday

season discounts abound. This means that consumers are also on the

lookout for bargain deals. In the case of ASOS, they are able to meet

the needs of their customers for ideal apparel at reasonable prices.

As such, during the holiday season ASOS must be able to get the word

going that they will be able to provide quality yet affordable wares

for the people.

            

Activity Week 1 Week 2 Week 3 Week 4

Conceptualization ofMarketingCampaignFormulationof themarketingCampaign Dissemination of theCampaign totargetmarketsegments

Computing and Category Management

            Supply is not a problem for ASOS. This was proven in the

past when they were able to meet the holiday shopping needs of their

customers in 2004. This is the case despite the problems that they

encountered in relation to their small warehouse. Now that ASOS was

able to move a bigger warehouse, they will be able to maximize their

potential and might be able to surpass their highest recorded sales in

the previous years.

            However, there is one issue that ASOS needs to resolve

immediately. Otherwise, it might affect their sales in the future.

From the time ASOS was launched until this day, they only offer

clothing items up to size 12. This means ASOS is excluding a segment

of the market that can offer them additional profit. This may also

cause some customers to get turned off since this suggests that ASOS

thinks only people with size 12 bodies have the right to wear

celebrity inspired apparel.

Customer Care and Service

According to Ross (1999), Total Quality Management is the

incorporation of all the functions and processes of the organization

(p. 1) to be able to develop the quality of the services and

or/products that they offer. With this, it can be stated that customer

relationship management programs are included in total quality

management. The need to develop an effective total quality management

is important due to various reasons. However, these reasons are still

geared towards providing customers with the great business experience

with the company.  It is also the case that total quality management

views customer satisfaction in relation to customer retention and

increase in the profits.

These are being considered by ASOS when they designed their

website. They wanted to give their customers the kind of shopping

experience that would lead them back to the website and make more

purchases.

Recommendations

 

            Based on the discussions made above, ASOS can better serve

their customers if they ensure the requirements of the 7C’s as

presented in the previous chapter are met. This means that they must

be able to provide outstanding services to encourage relationship

between them and their customers. In turn, this will led to customers

who are satisfied and willing to do more business with them.

            Based on the survey conducted for this research, ASOS

customers the things that concern them when they are buying at ASOS

are style, price and quality respectively. This means that ASOS must

be able to meet these demands of their customers if they want to

ensure continued patronage from them. 

            In addition, customers also want to see improvements in the website. They want more interactive type website. This means music and video clips are believed to be helpful in a customers’ decision to make a purchase. Furthered customer assistance is also being requested. Live chat is being consideredby many customers. ASOS can actually provide this kind of serviceif they outsource it to call centers in Asia for example. It willbe cheaper to outsource it than to create an in-house call center.

Vertical Supply Chain

Background

            Inditex is one of the worlds largest fashion distributors, with eight sales formats

-Zara, Pull and Bear, Massimo Dutti, Bershka, Stradivarius, Oysho, Zara Home y Kiddy's

Class- boasting 3.147 stores in 64 countries.

            The Inditex Group is comprised of over one hundred companies associated with

the business of textile design, manufacturing and distribution.

Thanks to its achievements and the uniqueness of its management model based on

innovation and flexibility, Inditex is one of the largest fashion distribution groups.

            Our fashion philosophy -creativity and quality design together with a rapid

response to market demands- has resulted in fast international expansion and excellent

response to our sales concepts.

            The first Zara shop opened its doors in 1975 in A Coruña (Spain), the city that

saw the Group's early beginnings and which is now home to its central offices. Its stores

can now be found in the most important shopping districts of more than 400 cities in

Europe, the Americas, Asia and Africa.[1]

            Today, Inditex is probably the fastest growing

fashion retailer in the world, with over 3,100 stores, in over 70

countries around the world, and Zara is around 1,000 of those

stores. Zara, as a member of the one worlds largest fashion

distributor, has a high response when it comes to their supply

chain. Latest fashion designs are easily supply to all the

stores/branches of Zara worldwide, in just a matter of two weeks.

 

Vertical Supply Chain

            Zara operates using a vertical supply chain which is

unique in the fashion industry. Vertically integrated business

undertakes a variety of activities from designing, manufacturing,

sourcing, and to distribution to retail stores.

            “While retailers concentrate their money and efforts on building a brand image

through advertising campaigns, their lack of control over sub-contractors has left many

open to accusations of using sweatshop labour when unacceptable practices are

uncovered at factories producing their merchandise.”[2]           

            Zara on the other hand, is driven by introduction of

new designs. The strategy is producing and releasing just a

number of products in a store, a certain store may only receive

ten of that product. The idea is releasing a design in limited or

exclusive. This strategy closely emulates a ‘make to order

environment’. In turn this builds up the customer’s anticipation

of the next product or design to be release. The reason why Zara

does not advertise because Zara does not focus in building brand

image, there target is production and the customer’s anticipation

of their product.

            Below is a supply chain barometer of Zara, showing

the balance of the company’s in-house and external operations.

The balance in fabric supply and manufacturing of the product

itself contributes in the company’s success. Not all the

company’s in-house resources are use. A large percentage of the

company’s fabric supplies are use in other brands. While in

manufacturing, Zara has the most products manufactured.

             All products from Zara are transported from the

company’s main central site in Spain. Most of the products are

shipped from the “A Coruña depot” (Zara Logistica). All stocks

are not held for long periods and are sent out to all the Zara

stores twice a week.  For international deliveries, the stocks

are delivered to the border of Spain, and the logistic provider

in charge for that country takes over the distribution to the

stores.

            Ideas and product designs starts from the designer.

The designer in the end gets the idea of what product to design

next by means of its sales from stores and customers feedback and

comments. Below is a diagram showing the cycle of a product is

made. The secret of the company’s success is because of having

total control in every part of the business, from designing, to

production, and to distribution. By having total control of the

entire process, the company can quickly react to the fast

changing fashion trend and customer taste, this provides the

company an idea of the latest fashion trend.

            Above is a cycle on how Zara produces and releases

new design in a short span of time. All of the functions of the

business continuously works together to produce new collections

and designs which are updated and completed on a weekly basis,

this allows the company to release new product easily. Zara shop

managers report to designers in La Coruña in a daily basis on

what has and has not sold. This report is used to determine if a

product is to be kept or altered, and whether new lines are

created. This happens in just a few days. The designers mostly

rely on customer the product sales, and feedbacks and comments

from customers. Stores order their stocks from an offer they

received twice a week from the commercial manager who then orders

the stock to the logistic who handles the stock. Stores are

ranked according to sales and forecast accuracy; this rank will

determine the level of priority for the store. A new product is

made available to a certain store after some successful trial and

is not pushed into the store. If a product is not selling, the

company stops the manufacturing. By this means no stock will over

pile.         

            Each store has different customers or segments. These

segments have different values in terms of their product choice.

Shoppers addicted to the Zara brand know exactly when the

deliveries will be arriving at their local shop and some even

turn up before opening time on delivery days to be the first to

pick up the latest lines. Because products are released

limitedly, customers regularly visit a store to see if a new

stock has arrived. Some product in a region may not be high

selling unlike in some region. In Asian market some design are

kept and maintain, while in most European country where fashion

is at constant change design must be constantly new therefore

releasing new product constantly. Customers in other region tend

to embrace what is the latest design in Europe, being the fashion

capital of the world, these proves that a product can be market

in other region such as Asia.  

 The Competition

            “H&M Hennes & Mauritz AB (H&M) is a Sweden-based company that is active

within the clothing retail industry. The Company is engaged in the design, production

and retail of clothing items and related accessories. Its product range is comprised of

clothing, including underwear and sportswear, for men, women, children and

teenagers, as well as cosmetic products and accessories. The Company has 20

production offices around the world, and it also buys its goods from approximately 700

independent suppliers mainly in Asia and Europe. H&M operates 1,345 retail outlets in

24 countries with its largest markets in Germany, Sweden and the United Kingdom.

During 2006, H&M opened 168 new stores, primarily in the United States, Spain,

Germany, France and Canada, and launched of online sales outside the Nordic region.

The Company's head office is placed in Stockholm, Sweden.”[3]

            Competition in the fashion industry has always been

tough. H&M Hennes & Mauritz AB, has always been Zara competitor

in this industry. H&M has been in business since 1947, while Zara

started business in 1975. Experience can play a big role in

business, but strategy has been the edge of Zara to gain

competitive advantage in the business. Zara has gone against the

conventional strategy where other company dare not pursue. The

strategy of Zara is unconventional, other companies in fashion

retail uses a different strategy. Zara’s strategy works in making

the products of the company more anticipated by the customers.

The strategy also gives the company the full responsibility in

managing all the business processes; form designing, to

production, to shipment, etc. This allows the company to focus on

each process, making each process vital.

            "Investment banks used to say that this model did not work, but we have shown

that it gives us more flexibility in production, sales and stock management," said Inditex

chief executive Jose Maria Castellano. [4]

            Indeed the company has gone a long way in using such

strategy. The table came from the web site  The tables below

shows both Zara and H&M marketing performance in the start of

this year alone:

 

  Quarterly(Jan '07)

Annual(2007)

Annual(TTM)

Net Profit Margin 14.66% 12.32% 12.32% Operating Margin 19.05% 16.56% 16.56% EBITD Margin - 21.84% 21.84% Return on AverageAssets 26.39% 18.46% 18.46%

Return on AverageEquity 45.06% 31.57% 31.57%

Employees 69,240 - - Table1: Key Stats & Ratios (ZARA)

 

  Quarterly(Feb '07)

Annual(2006)

Annual(TTM)

Net Profit Margin 13.72% 15.79% 16.11% Operating Margin 19.22% 22.36% 22.75% EBITD Margin - 24.74% 25.15% Return on AverageAssets 25.05% 31.41% 31.20%

Return on AverageEquity 31.74% 40.21% 38.91%

Employees 40,368 - - Table2: Key Stats & Ratios (H&M) 

        The table shows that as of the start this year Zara has

been very productive in terms of return of average assets and

equity as well, against its competitor H&M. This shows that the

company’s starting performance is at a good start. And it will

likely continue to be productive in the long run.

Customer Value

            Consumers respond differently in every country. Every

customer in different country, have different values. Some

customers value quality more than price, and vice versa. Retail

brand holds a conventional wisdom in presenting one face of the

company to the world market- a consistent image that defines the

product wherever consumer finds it. Because customers in every

country respond differently to a product, it is a vital key to

under stand these differences in order to build a successful

retail brand across borders. Zara, understands the different

response of customer in every territory the company move into.

Understanding the different response of customers allowed Zara to

determine the demands of customers and to makes products based on

such demands.            

             “The McKinsey Quarterly”, a quarterly journal;

published on 2002, compared British, French, and Germen shoppers

of groceries and apparel. Comparing more than 1,500 consumers'

ratings of how well a store performed with the store choices

these consumers actually made, the research concluded that what

the shoppers say and what they do are not always the same. For

example: shoppers don’t shop in a particular store but because

their friends do, they tend to shop in the same store as well.

This means that friends’ shopping choices turn out to be a

powerful motivator.

            Consumers for both groceries and apparel fall into

three (3) different segments. First are customers who care for

service/quality, this type of segment care most about the variety and

performance of products in stores and the service that the store

provide. Next are the price/value customers who are concerned about

spending their money wisely. And the affinity customers who

primarily seek store that suit people like themselves. This shows

the big influence of friends and the society that a customer

belongs to, to the customer’s personal decision.

            In both the clothing and the grocery segments, the

French gives emphasis on service and quality; the German, price

and value are more important; while the English, Affinity. These

differences does not conclude that a company that give emphasis

to price and value in their product and services will only

succeed in German market, this suggest that the size of value-

oriented market is different from one country to another.

Understanding the reasons and factors what drives customer

loyalty in each geographic market can have enormous financial

benefits to the company. Zara understands the values of customers

in different country, this give the company an advantage and

knowledge on what products and services that a segment demands in

that country.

 

Survey resultsWhat do European consumers value?

   

 

 

 

 

 

 

 

Percent ofrespondents      Clothing      

 

Service/Qualitycustomers

Price/valuecustomers

Affinitycustomers

France 50% 32% 18%Germany 16% 39% 45%United Kingdom 15% 19% 66%

Table 3: Percentage of European customer value.source: McKinsey Survey > 1,500 customers' ratings of 40 retail clothing brand in France,Germany, and United Kingdom 

            Different values of customers in different country

suggest that the strategy used by the company in a certain

country, may not be successful to another country. That is why it

is very important to distinguish the different values of each

market, in order to develop a strategy that will be suitable to

the market trends and demands. Having a competitive marketing

strategy gives a company a clear focus of exactly what the

company must execute in order to gain competitive advantage and

succeed.

Vertical Supply Chain

Background

            Inditex is one of the worlds largest fashion distributors, with eight sales formats

-Zara, Pull and Bear, Massimo Dutti, Bershka, Stradivarius, Oysho, Zara Home y Kiddy's

Class- boasting 3.147 stores in 64 countries.

            The Inditex Group is comprised of over one hundred companies associated with

the business of textile design, manufacturing and distribution.

Thanks to its achievements and the uniqueness of its management model based on

innovation and flexibility, Inditex is one of the largest fashion distribution groups.

            Our fashion philosophy -creativity and quality design together with a rapid

response to market demands- has resulted in fast international expansion and excellent

response to our sales concepts.

            The first Zara shop opened its doors in 1975 in A Coruña (Spain), the city that

saw the Group's early beginnings and which is now home to its central offices. Its stores

can now be found in the most important shopping districts of more than 400 cities in

Europe, the Americas, Asia and Africa.[1]

            Today, Inditex is probably the fastest growing

fashion retailer in the world, with over 3,100 stores, in over 70

countries around the world, and Zara is around 1,000 of those

stores. Zara, as a member of the one worlds largest fashion

distributor, has a high response when it comes to their supply

chain. Latest fashion designs are easily supply to all the

stores/branches of Zara worldwide, in just a matter of two weeks.

 

Vertical Supply Chain

            Zara operates using a vertical supply chain which is

unique in the fashion industry. Vertically integrated business

undertakes a variety of activities from designing, manufacturing,

sourcing, and to distribution to retail stores.

            “While retailers concentrate their money and efforts on building a brand image

through advertising campaigns, their lack of control over sub-contractors has left many

open to accusations of using sweatshop labour when unacceptable practices are

uncovered at factories producing their merchandise.”[2]           

            Zara on the other hand, is driven by introduction of

new designs. The strategy is producing and releasing just a

number of products in a store, a certain store may only receive

ten of that product. The idea is releasing a design in limited or

exclusive. This strategy closely emulates a ‘make to order

environment’. In turn this builds up the customer’s anticipation

of the next product or design to be release. The reason why Zara

does not advertise because Zara does not focus in building brand

image, there target is production and the customer’s anticipation

of their product.

            Below is a supply chain barometer of Zara, showing

the balance of the company’s in-house and external operations.

The balance in fabric supply and manufacturing of the product

itself contributes in the company’s success. Not all the

company’s in-house resources are use. A large percentage of the

company’s fabric supplies are use in other brands. While in

manufacturing, Zara has the most products manufactured.

             All products from Zara are transported from the

company’s main central site in Spain. Most of the products are

shipped from the “A Coruña depot” (Zara Logistica). All stocks

are not held for long periods and are sent out to all the Zara

stores twice a week.  For international deliveries, the stocks

are delivered to the border of Spain, and the logistic provider

in charge for that country takes over the distribution to the

stores.

            Ideas and product designs starts from the designer.

The designer in the end gets the idea of what product to design

next by means of its sales from stores and customers feedback and

comments. Below is a diagram showing the cycle of a product is

made. The secret of the company’s success is because of having

total control in every part of the business, from designing, to

production, and to distribution. By having total control of the

entire process, the company can quickly react to the fast

changing fashion trend and customer taste, this provides the

company an idea of the latest fashion trend.

            Above is a cycle on how Zara produces and releases

new design in a short span of time. All of the functions of the

business continuously works together to produce new collections

and designs which are updated and completed on a weekly basis,

this allows the company to release new product easily. Zara shop

managers report to designers in La Coruña in a daily basis on

what has and has not sold. This report is used to determine if a

product is to be kept or altered, and whether new lines are

created. This happens in just a few days. The designers mostly

rely on customer the product sales, and feedbacks and comments

from customers. Stores order their stocks from an offer they

received twice a week from the commercial manager who then orders

the stock to the logistic who handles the stock. Stores are

ranked according to sales and forecast accuracy; this rank will

determine the level of priority for the store. A new product is

made available to a certain store after some successful trial and

is not pushed into the store. If a product is not selling, the

company stops the manufacturing. By this means no stock will over

pile.         

            Each store has different customers or segments. These

segments have different values in terms of their product choice.

Shoppers addicted to the Zara brand know exactly when the

deliveries will be arriving at their local shop and some even

turn up before opening time on delivery days to be the first to

pick up the latest lines. Because products are released

limitedly, customers regularly visit a store to see if a new

stock has arrived. Some product in a region may not be high

selling unlike in some region. In Asian market some design are

kept and maintain, while in most European country where fashion

is at constant change design must be constantly new therefore

releasing new product constantly. Customers in other region tend

to embrace what is the latest design in Europe, being the fashion

capital of the world, these proves that a product can be market

in other region such as Asia.  

 The Competition

            “H&M Hennes & Mauritz AB (H&M) is a Sweden-based company that is active

within the clothing retail industry. The Company is engaged in the design, production

and retail of clothing items and related accessories. Its product range is comprised of

clothing, including underwear and sportswear, for men, women, children and

teenagers, as well as cosmetic products and accessories. The Company has 20

production offices around the world, and it also buys its goods from approximately 700

independent suppliers mainly in Asia and Europe. H&M operates 1,345 retail outlets in

24 countries with its largest markets in Germany, Sweden and the United Kingdom.

During 2006, H&M opened 168 new stores, primarily in the United States, Spain,

Germany, France and Canada, and launched of online sales outside the Nordic region.

The Company's head office is placed in Stockholm, Sweden.”[3]

            Competition in the fashion industry has always been

tough. H&M Hennes & Mauritz AB, has always been Zara competitor

in this industry. H&M has been in business since 1947, while Zara

started business in 1975. Experience can play a big role in

business, but strategy has been the edge of Zara to gain

competitive advantage in the business. Zara has gone against the

conventional strategy where other company dare not pursue. The

strategy of Zara is unconventional, other companies in fashion

retail uses a different strategy. Zara’s strategy works in making

the products of the company more anticipated by the customers.

The strategy also gives the company the full responsibility in

managing all the business processes; form designing, to

production, to shipment, etc. This allows the company to focus on

each process, making each process vital.

            "Investment banks used to say that this model did not work, but we have shown

that it gives us more flexibility in production, sales and stock management," said Inditex

chief executive Jose Maria Castellano. [4]

            Indeed the company has gone a long way in using such

strategy. The table came from the web site  The tables below

shows both Zara and H&M marketing performance in the start of

this year alone:

 

  Quarterly(Jan '07)

Annual(2007)

Annual(TTM)

Net Profit Margin 14.66% 12.32% 12.32% Operating Margin 19.05% 16.56% 16.56% EBITD Margin - 21.84% 21.84% Return on AverageAssets 26.39% 18.46% 18.46%

Return on AverageEquity 45.06% 31.57% 31.57%

Employees 69,240 - - Table1: Key Stats & Ratios (ZARA)

 

  Quarterly(Feb '07)

Annual(2006)

Annual(TTM)

Net Profit Margin 13.72% 15.79% 16.11% Operating Margin 19.22% 22.36% 22.75% EBITD Margin - 24.74% 25.15% Return on AverageAssets 25.05% 31.41% 31.20%

Return on AverageEquity 31.74% 40.21% 38.91%

Employees 40,368 - - Table2: Key Stats & Ratios (H&M) 

        The table shows that as of the start this year Zara has

been very productive in terms of return of average assets and

equity as well, against its competitor H&M. This shows that the

company’s starting performance is at a good start. And it will

likely continue to be productive in the long run.

Customer Value

            Consumers respond differently in every country. Every

customer in different country, have different values. Some

customers value quality more than price, and vice versa. Retail

brand holds a conventional wisdom in presenting one face of the

company to the world market- a consistent image that defines the

product wherever consumer finds it. Because customers in every

country respond differently to a product, it is a vital key to

under stand these differences in order to build a successful

retail brand across borders. Zara, understands the different

response of customer in every territory the company move into.

Understanding the different response of customers allowed Zara to

determine the demands of customers and to makes products based on

such demands.            

             “The McKinsey Quarterly”, a quarterly journal;

published on 2002, compared British, French, and Germen shoppers

of groceries and apparel. Comparing more than 1,500 consumers'

ratings of how well a store performed with the store choices

these consumers actually made, the research concluded that what

the shoppers say and what they do are not always the same. For

example: shoppers don’t shop in a particular store but because

their friends do, they tend to shop in the same store as well.

This means that friends’ shopping choices turn out to be a

powerful motivator.

            Consumers for both groceries and apparel fall into

three (3) different segments. First are customers who care for

service/quality, this type of segment care most about the variety and

performance of products in stores and the service that the store

provide. Next are the price/value customers who are concerned about

spending their money wisely. And the affinity customers who

primarily seek store that suit people like themselves. This shows

the big influence of friends and the society that a customer

belongs to, to the customer’s personal decision.

            In both the clothing and the grocery segments, the

French gives emphasis on service and quality; the German, price

and value are more important; while the English, Affinity. These

differences does not conclude that a company that give emphasis

to price and value in their product and services will only

succeed in German market, this suggest that the size of value-

oriented market is different from one country to another.

Understanding the reasons and factors what drives customer

loyalty in each geographic market can have enormous financial

benefits to the company. Zara understands the values of customers

in different country, this give the company an advantage and

knowledge on what products and services that a segment demands in

that country.

 

Survey resultsWhat do European consumers value?

   

 

 

 

 

 

 

 

Percent ofrespondents      Clothing      

 

Service/Qualitycustomers

Price/valuecustomers

Affinitycustomers

France 50% 32% 18%Germany 16% 39% 45%United Kingdom 15% 19% 66%

Table 3: Percentage of European customer value.source: McKinsey Survey > 1,500 customers' ratings of 40 retail clothing brand in France,Germany, and United Kingdom 

            Different values of customers in different country

suggest that the strategy used by the company in a certain

country, may not be successful to another country. That is why it

is very important to distinguish the different values of each

market, in order to develop a strategy that will be suitable to

the market trends and demands. Having a competitive marketing

strategy gives a company a clear focus of exactly what the

company must execute in order to gain competitive advantage and

succeed.

Customer satisfaction

Literature Review

Today’s market is characterized by highly competitive

organizations which are all vying for consumer’s loyalty. Firms

are faced with the challenge to maintain their own competitive

edge to be able to survive and be successful. Strategies are

carefully planned and executed to gain the ultimate goal of all:

company growth. However, external factors are not the only

elements which influence growth. Today most companies find that

it impossible to create any kind of sustainable competitive

advantage based on product alone. It is common knowledge that

every one of the successful companies sought and found a precise

understanding of how it could create a customer-centered

competitive advantage.

 

Competition is an important factor to consider before

entering a business. Companies should have successful competitive

strategies to be able attract, retain and grow customers.

However, before the company can plan and execute these

strategies, it should be able to pinpoint its sources of

competitive advantage which can be differentiated through

products, services, channels, people and image (Kotler &

Armstrong, 2001). Moreover, consumers tend to buy what is already

familiar to them (Mittelhauser, 1997). A fine and well-advertised

brand might have a competitive edge from a lesser exposed brand

name. But then, a lesser known brand can also have an edge over

price, given that they cost less than known brands (Kim et al,

2002).

 

Customer satisfaction refers to the consumer’s positive

subjective evaluation of the outcomes and experiences associated

with using or consuming the product or service. It refers to

either a discrete, time-limited event or the entire time the

service or product is experienced (Duffy & Kechand, 1998).

Satisfaction occurs when the product has been able to meet or

exceed the conceived expectations that the customer has (Padilla,

1996). Furthermore, customer satisfaction may also be considered

as the measure of the high degree of quality of the product

(Jacobs et al., 1998).     Crosby and colleagues (2003) deemed

that once a product or service has been delivered or sold, its

quality is believed to have been established.

 

Customer satisfaction is the primary aim of marketing. Most

enterprises  ensure the best possible chance of attaining long-

term stability and competitive standing through comptehensive

customer analysis and implementation of marketing communication

plans. Marketing makes the basic assumption that customer

satisfaction should be the primary aim of the business. Such

satisfaction can be achieved and sustained through the provision

of competitive products or services, at competitive prices

(Spreng, MacKenzie & Olshavsky, 1996). It should focus on every

aspect of marketing, not only on promotion and sales techniques,

to persuade customers to buy but also on target market, marketing

mix and the effective marketing strategy (Kotler & Armstrong,

2001) because successful marketing results in stronger products,

happier customers, and bigger profits.

 

Most companies find it impossible to create any kind of

sustainable competitive advantage based on product alone. It is

common knowledge that every one of the successful companies

sought and found a precise understanding of how it could create a

customer-centered competitive advantage. Hessan & Whitely (1996)

emphasized the idea to take advantage of the competitive

situation not just by being better in how that product gets sold,

serviced, and marketed at the customer interface. It requires

that companies create breakthroughs in how they interact with

customers, and design a way of interacting that makes an

indelible impression on customers, one that so utterly

distinguishes them from others that it becomes a brand in itself.

 

The advances in technology and the fast modernization of the

world, in general, opened new and very promising avenues of

business opportunities not just in an individual’s locale but

also abroad. A lot of business-minded individuals from different

countries with different nationalities and cultural orientation

have and continuously defied the geographic boundaries that exist

between continents. This is evident in the growing number of

internationally-operating business firms all over the world run

by entrepreneurs of varying race and culture. The information man

has successfully rebelled against intercontinental borders and

the challenge that confronts him the most, deals with how to fit

and blend in the new cultural environment in which their

businesses are situated.

  

Key Industry Success Factors

One of the core characteristics of a successful organization

is focus. Since the business environments are fast becoming more

and more complex added to the fact that it changes rapidly and

dynamically, businesses need to concentrate on a few key elements

that are most important to their organizations survival. Thus, it

is not surprising the critical success factors keep the

organizations from straying too far with external issues not

relevant to their company’s success.

 

Critical success factors (CSFs) in business, are the limited

number of areas in which results, if they are satisfactory can

ensure that successful competitive advantage for the company

(Thierauf 2001). Determining these factors is an old concept in

business because there were great leaders throughout history who

have identified and addressed key factors to achieve their

successes. There is no one definition of CSF but it is considered

that these are the areas which the company needs to concentrate

on to flourish. Therefore, the activities should be carefully

monitored and guided by the management.

 

Chung (1987) defined critical success factors as managerial

factors that create a competitive edge for a company in its

respective industry. There is no specific process in identifying

and executing critical success factors in strategic management

planning. This is the reason why Thierauf (2001) asserts that

different companies which have similar structure can conduct its

market entry forming different strategies which lead to the

development of various critical factors. As the primary means for

an organization to achieve its strategy, critical success factors

must take into account the differences in the environment and

organization that exists.

 

There significant success factors that can determine and

predict the positive outcomes and benefits of the organization

strategic options. This is regardless of the scope of the

operations and business transactions of the (local or

international) of the organization. Such success factors are the

significant considerations of variables that can directly and

indirectly influence the growth and development of the company.

  

Porter’s Five Forces Model

Understanding the dynamics of the competitors in the

industry helps assess the potential opportunities of every

business venture by differentiating the similar products or

services offered by the company against other business

organizations. According to David (2003), there are at least four

types of resources which the company can use to achieve its

objectives: financial, tangible, human and technological

resources. As such, it is necessary to realistically assess

potential levels of profitability, opportunity and risk based on

five key factors within an industry so as to determine the long-

term profitability of a market or market segment.

 

1. Suppliers. An organization that offers products as well as

services also depends on suppliers that deliver the company’s raw

materials. This condition leads to the buyer-supplier

relationships within different industries. Such relationship is

directly influence by the changes in the supply and demand

variables based on the existing needs of the consumer population

(Lee & Billinton, 1995; Katsikeas, Schlegelmilch & Skarmeas,

2002). The influence of the supplier is defined by its ability to

dictate price and influence availability of materials. Other

strengths of the supplier include their ability to (a) increase

prices without suffering from a decrease in volume, (b) reduce

the quantity supplied, (c) organize in a formal or informal

manner, (d) compete in an environment with relatively few

substitutes, (e) provide a product/material that is a critical

part of the end product or service, (f) impose switching costs on

their customers when they depart, and (g) integrate downstream by

purchasing or controlling the distribution channels (Berry et al,

1998; Degraeve & Roodhooft, 1999; Anderson & Katz, 1998).

 

2. Buyers. The power of buyers describes the impact customers

have on an industry. When buyer power is strong, the relationship

to the producing industry becomes closer to market conditions

wherein the buyer has the most influence in determining the price

(Owens et al, 1998; Bowman, 1999). As such the bargaining power

of buyers increases when they have the ability to (a) make

agreements with other companies providing similar products and

services, (b) purchase a product that represents a significant

fraction of the expenses incurred by the company, (c) purchase of

a product that is undifferentiated, (d) incur low changes in

costs when they change vendors, (e) be price sensitive by bearing

in mind the options available, and (f) integration to purchase

the goods of the suppliers (Baldwin et al, 2002; Bowers, Martin &

Luker, 1990).

 

3. New Entrants and Barriers of Entry. The possibility of new

companies entering the industry influences the pace of the

competition. Thus, the key is to evaluate the methods of entry

and exit for a new player to the industry. Although any company

should be able to enter and exit the sector, each industry

presents different levels of difficulty influenced by economics.

These unique characteristics of the each industry are referred to

as barriers to entry which may come from different aspects of the

business ranging from supplies to technology. They seek to reduce

the rate of entry of new entrants which leads to maintenance of a

level of profits for the existing players.

 

In terms of fashion retailing, Birtwistle and Freathy (1998)

stated that its market has gained criticism for a lack of

differentiation, possibly due to greater degrees of market

concentration and the standardization of the fashion retail offer

across stores and regions. With the addition of new technological

developments, fashion retailers face both a differentiation

dilemma and a challenge in maintaining any long-term advantage

over their competitors. Competitive advantage is needed, and

being unique and persuasive are important in order to attract the

attention of customers and create positive consumer behavior that

would benefit the company. Davies (1992) stated that four things

are needed to be considered in order for retail stores or fashion

brands to achieve competitive advantage. They are: the ability to

differentiate; command a price premium; have a separate existence

to the corporation; and provide a form of psychic value to

customers. Similarly, these are the significant considerations

made by new fashion retail stores in entering the fashion

industry market.

 

4. Substitutes.   “Substitute products” as those that are

available in other industries that meet an identical or similar

need for the end user. As more substitutes become available and

affordable, the demand becomes more elastic since customers have

more alternatives. The treat of substitutes often impacts price-

based competition since substitute products may limit the ability

of firms within an industry to raise prices and improve margins.

Other concerns in assessing the threat of substitutes include the

presence of new technologies that can contribute to competition

though more diverse and economical substitute products and

services. A segment is unattractive when there are actual or

potential substitutes for a product.

 

Azuma and Fernie (2003) stated that fashion is an aesthetic

expression that aims to communicate notions, subtleties, and

therefore, as soon as an aesthetic order comes to be generally

perceived as a code, then works of art tend to move beyond this

code while exploring its possible mutations and extensions. The

creative aspect of fashion in general cultivates the numerous

ways of expressing oneself through other products available in

the market. These include accessories and jewelries, bags, shoes,

parlors and salons. Furthermore, fashion is believed to be a

cyclical reflection of social, cultural, and environmental

characteristics that are unique to a certain point of time in a

particular geographical setting, in addition to playing a crucial

role in complementing one’s self-image. As such, the never-ending

and ever-increasing possibilities of portraying an individual’s

self-image through other products available in other mentioned

industries pose disadvantages as well as challenge in the entire

clothing line of the fashion industry.  

 

5. Industry Competitors. A considerable number of companies have

developed into an essential part of the period of global

competition, increasing development, improved business paradigms,

and corporate reorganization. The continuing transformation from

the traditional industrial framework with its hierarchical

companies to a worldwide, knowledge-founded financial system and

intelligent corporations necessitates business management to

realign and relocate its strategies (Mcmenamin, 1999). Along with

the intense marketing nowadays, firms are faced with the

challenge to maintain their own competitive edge to be able to

survive and be successful. Strategies are carefully planned and

executed to gain the ultimate goal of all: company growth (Karp &

Schlessinger, 2002).

 

Among the largest apparel manufacturers in Hong Kong that

likewise operates clothing fashion outlets in China includes Lai

Sun Garments (under the brand Crocodile), Trinity Textiles, Smart

Shirts, Giordano, Tal Apparel, Fang Brothers Knitting (with brand

names: Jessica, Episode, Colour 18), Unimix (with brand names:

Gieves & Hawkes, Lee Cooper Jeans), Peninsula Knitters, Esquel

Enterprises, Yangtzekiang Garments (with brands: Michel Rene,

Daniel Hechter), Crystal Knitters, Goldlion and  Winner Co.

Garments which offer retail apparel products internationally.

Other recognized apparel companies that manufacture overseas

through sub-contractors include Esprit, Bossini, G2000/U2 and

Shanghai Tang. Esprit Bossini and G2000/U2 are the local

retailers and franchisers which are characterized with relatively

stronger local market share compared with the foreign brands in

the same price range like Benetton and Mango (Cheong, 2004).

  

SWOT Analysis

The success of the business organization entails detailed

understanding and examination of political, social and economic

factors that influence the growth and continuous operations of

the company. Studying the important consideration relevant to the

organization to serve the purpose and objectives of the company

will determine its success. Consequently, decision-makers of the

company should be sensitive of the general trends and changes

that are taking place in their industry. This will include

efforts to maximize the opportunities available while reducing

the risks that confront the business organization.

 1. Introduction

1.1 Background of the problem/issue

1.2 Research objectives/questions

1.3 Importance/contribution of your research

1.4 Outline of the remainder of the report

2.  Literature review

1. Overview of the organization of the present chapter

                                 Use appropriate headings and/or sub-headings with corresponding numbering (e.g., 2.2, 2.3, 2.4 … to

                                                                                 identify and highlight important variables

                                                                                 define terms

                                                                                 integrate relevant information – do not just report studies in chronological order

                                                                                 highlight strengthsand weaknesses and identify gaps in the literature

      Note: Goals of a literature review

                                 To demonstrate a familiarity with a body of knowledge and establish credibility

                                 To show the path of prior research and how a current project is linked to it

                                 To integrate and summarize what is known in an area

                                 To learn from others and stimulate new ideas

3. Methodology

      3.1 Chapter overview

      3.2 Sample (e.g., description of sampling method, size and characteristics)

      3.3 Method (e.g., description of data collection method, rationales for using this method(s)   as compared to the others, data collection procedures, and any ethical     concerns you may need to address)

      3.4 Measures (e.g., description of measures/instrumentations – i.e., your questionnaire)

                                 Provide sample questions/scale items

                                 Give information about reliability and validity

3.5 Limitations

      3.6 Data analysis (e.g., description of data processing andanalytical techniques)

 

In my dissertation,

 

I am focusing in ZARA this co., i would like to explore its successful factors & its strategic management.

(the exactly topic sentense I still not defined yet, plz help)

 

refer to the "dissertation notes" that i hv been attached,

there ar 3 chapters, plz follow that guideline.

 

In the chapter 2 Literature Review,

I am requested to write SWOT, PEST, Porter 5 forces & value chain.

 

the following message was sent by my supervisor:

 

"In your literature review, you should review literature on industrial/organization (I/O) model and value-based view of the firm.  Under I/O model, you should review the uses of PEST and five forces model in prior research.  For value-based view of thefirm, you should review the uses of value-chain analysis.  For success factors, you should review success factors and their usesin prior research, particularly in apparel industry.  It's okay for you to have different headings in Literature Review.

 

For your questionnaire, you should identify the key success factors in literature and then include them in your questionnaire.  All direct competitors, including ZARA, should becompared in accordance with these criteria so that you can know why ZARA can outperform the others."

 

In the chapter 3, Methodology,

I need a questionnaire abt ZARA, specially in HK market.

if it is possible, pls give me a draft abt the questionnaire as ihv to hand in to my supervisior first.

 

P.S. plz let me know wt else u ar ar looking for my help. Thanks

Business Strategy of Zara Thesis Statements

Business Strategy of Zara

1. While there is an emergence of several clothing line that

are competing with each other, the effect of giving

consumers a status to stand out in the crowd makes the

business industry bow down to the efficiency of Zara.

2. The status of Zara in the business is considered as one of

the leading names in the clothing industry, which is

attributed to the fact that its business conduct is

interlinked.

3. The effect of having a set of market researchers made the

business of Zara effective in rendering to consumers their

products.

Maltese Consumer Preference of Fast

 

Consumer preference is an important element in business. With the

congested and very competitive marketplace in the world today,

companies must know their consumers and their preferences to be able

to survive and even have competitive advantage. The situation in Malta

is that consumers seem to prefer foreign made fast-moving consumer

goods (FMCG) than local ones because Maltese consumers seem to believe

that local products are inferior to foreign goods. However, due to

levies attached to the said products, the prices of the foreign FMCG

were high which therefore made local consumer goods more popular in

the market. The advent of the European Union (EU) membership of Malta

removed the levies paid on foreign manufactured FMCG because of the

policy of allowing free movement of goods which means both foreign and

local brands would have the same opportunities in the market. Thus,

many believed that this would cause local FMCG to lose market share.

However, in some sectors, local products still retained popularity.

 Consumer preferences by the Maltese people certainly imply the

reality of any brand knowledge that will determine how these consumers

thinks about a particular good/brand (Keller, 1993) and how they will

responds to different stimuli regarding a brand. Research has focused

on a wide range of issues, such as the relationships between brand

perceptions and purchase intentions (Laroche, Kim and Zhou, 1996);

marketing activities and brand perceptions (Dodds, Monroe and Grewal,

1991); country of origin effects and brand perceptions (Lee and

Brinberg, 1995) as well as the relationship between consumer images

and cultures (Zinkhan and Prenshaw, 1994) and between self perception

and goods image (Fournier, 1994).

 

1.2 PURPOSE AND IMPORTANCE OF THE STUDY 

The purpose and importance of this study is that it can have a direct

connection among Maltese consumers through the use of a survey that

will serve as a research tool in getting and collating relevant data

and information needed in realizing the study in determining consumer

preferences between local and foreign goods. This research will cover

whether Maltese consumers prefer foreign or local FMCG as well as the

impact of the removal of levies on foreign products. This research

intends to conduct a study on the consumer preferences in Malta in

fast-moving consumer goods, focusing on local products vis-à-vis

foreign goods. Alongside this issue is the effect of the removal of

levies on foreign FMCG.

 1.3 STATEMENT OF THE PROBLEM 

The rapid transition of fast moving consumer goods in Malta could

possibly invite a quick turn of events regarding its business and

market sectors due to a change and shift of the consumers attitude and

preferences when it comes to foreign goods and that sometimes the

local goods being produced in the country were set aside because

foreign goods are of high value to consumers and of quality standards

as compared to local goods that can possibly be of low materials used

and lacks brand quality that the researcher believe to be the crucial

factor that a consumer should look for in those goods. There may have

problems also in the fast pace of the situation but it is the

responsibility of the business companies and respected management to

always plan and design for something better that will easily fit to

the lifestyle of the Maltese so as to keep the longevity of the goods

and services in the business market wherein competition can serve as a

constructive threat to such companies selling similar goods and

products content amicably.  

  

1.4 RESEARCH QUESTIONS

 

The study intends to answer the following research questions

specifically:

a.                What do Maltese consumers prefer in terms of fast-

moving consumer goods: the foreign or the locally

manufactured products?

b.                What are the perceptions of Maltese consumers on

foreign manufactured fast-moving consumer goods (FMCG)?

c.                 What are the perceptions of Maltese consumers on

locally manufactured fast-moving consumer goods (FMCG)?

d.                What are the effects of the removal of levies on

foreign fast-moving consumer goods (FMCG)?

e.                What are the marketing activities done by local

manufacturing companies to protect their market shares

against the effect of the removal of levies on foreign fast-

moving consumer goods (FMCG)?

 

 

1.5 AIMS AND OBJECTIVES 

The research aims to explore Maltese consumer preferences in FMCG

and the effect of the removal of levies on foreign FMCG. The

researcher will start on preparing the survey questionnaire after

the approval of the proposal and the subsequent changes made if

there are any. The form would then be submitted again for approval

along with the request letters to the CEO and the supermarket

managers. The researcher will also start finding two research

assistants who are capable of conducting a survey. The study also

aims to give a clear emphasis on the needed aspect of the topic in

gathering coherent evidence for the validity of research information

and findings integrating Maltese consumer preferences with regards

to the fast moving consumer goods as well as the effect of the

removal of the levies and that the study aims to discuss and explain

theories and concepts involved for the overall study.

The focus objective of the study is to be able to freely execute a

fact finding ways of providing researchers appropriate and suitable

research sources and materials to be used in the methodology and to

give a detailed and justifiable analysis of related data and

information as a part of the successful handling and realization of

the dissertation process. The objective also needs to achieve the

following three important points that must be included and done as

the study goes on:

A. First, there has to be an application of the survey technique

that caters to determine the preference between local and foreign

goods among Maltese consumers respectively

B. There needs to have a sales data information from supermarkets

for various sectors and

C. An interview with at least two Chief Executive Officers of local

manufacturing companies to provide their respective views on the

issues

 

1.6 SCOPE AND LIMITATIONS OF THE STUDY 

Research requires an organized data gathering in order to pinpoint the

research philosophies and theories that will be included in the

research, the methodology of the research and the instruments of data

interpretation. The descriptive research method uses observation and

surveys. In this method, it is possible that the study would be

inexpensive and time-efficient. Thus, this study will use the

descriptive approach. Descriptive method of research is to gather

information about the present existing condition. The purpose of

employing this method is to describe the nature of a situation, as it

exists at the time of the study and to explore the cause/s of

particular phenomena. The researcher opted to use this kind of

research considering the desire of the researcher to obtain first hand

data from the respondents so as to formulate rational and sound

conclusions and recommendations for the study. This study employs

quantitative research method, since this research intends to find

sound evidence. These quantitative elements does not have standard

measures, rather they are behaviour, attitudes, opinions, and beliefs.

The researcher will conduct a survey on consumer preferences on

foreign and local FMCG. The data obtained from this would help in

determining the factors which guide Maltese consumers in their buying

behaviour regarding FMCG.

 Moreover, the researcher will conduct in-depth interviews with two

CEO of local manufacturing companies of FMCG on the effects of the

removal of levies on the market. This will be supported by the sales

statistics for various products in different sectors from leading

supermarkets in the span of 4 years, from 2002-2005. This data would

be data obtained by the researcher through contacting 3 major

supermarkets and doing a comparison of prices and sales of various

products in the specified period of time indicated. The biggest

limitation of the study is the gatekeeper of the statistical

information of the sales of the various products of the sectors needed

for the research. The gatekeepers would be the management of the

supermarkets. To overcome this limitation, the researcher has to

include in the letter that information disclosed would be kept

confidential. Although that would mean that the tables would not be

available to the public, the advantage of having that information would

offset any possible disadvantages. Another limitation would be the

consent of the interviews with the CEOs of the chosen local

manufacturing companies. The researcher has to assure them, as with the

previous limitation with the supermarkets’ management teams that any

information given which will be indicated vital to the company, would

be kept confidential. The last limitation involves logistics. There are

many data gathering methods which needed to be executed that lack of

both time and money is possible constraints in accomplishing the tasks.

There would be a need to hire research assistants to conduct the

surveys in different areas.

  

1.7 APPLICATION OF THE STUDY 

This study is beneficial for determining the preference of Maltese

consumers. It will help in the design of marketing activities for both

foreign and local manufacturing companies of FCMG to be able to gain

substantial market share in the country. This will also give further

insight on the perceptions of Maltese consumers on foreign and local

FCMG which is important in formulating marketing plans. According to

the CIA World Factbook (2005), Malta has transformed itself into a

freight transhipment point, financial centre and tourist destination

since the mid-1980s. In May 2004, Malta became a member of the

European Union. This seemed to be a promising alliance for the country

because the more open policies of the EU accommodates Malta’s economic

dependence on foreign trade; manufacturing specifically electronics

and textiles and tourism (CIA World Factbook, 2005). Changes were made

in policies of key areas to adapt to the EU. Among these changes

concerned the economy, in the form of the Community Acquis which entails

a free movement of goods among member nations of the EU (Europa,

2004). Community Acquis refer to the elimination of measures which

restrict trade, from customs duties and quantitative trade to

equivalent, protectionist policies.

This is a development of the adopted timetable of the Maltese

government on the removal of taxes on non-agricultural products which

will eliminate levies on imports from the EU. With the progress of

legislation of the country for its complete economic integration to

the European Union, it can be seen that the main focus of economic

policies would be to remove all customs duties or levies which would

allow free movement of goods which will impact the market of different

products including the focus of this study. According to the World

Economic Outlook (2001), the projections for Malta in terms of annual

percent change is from 2.9 percent 2000 to 4.6 percent in 2001. This

projection was done for all countries and Malta was included with the

Middle East and Turkey as part of the block of developing countries.

This is true for candidates such as Latvia and Hungary, for the

European Union accession at that time. The report also indicated that

Malta’s consumer prices have not changed from 1999 to 2002, keeping at

the level of 2.5 percent during these three years. This indicates that

prices of goods in the country have remained stabilized; however,

Dudikova (2005) reports that although predictions of the 4.6 percent

annual growth are true, it is not yet affecting the lives of many

Maltese citizens and that of other new members of the European Union.

This information might be critical factor in the research as consumer

perception on products both foreign and locally made would be studied.

  

1.8 OVERVIEW OF THE STUDY

For this research study, the researcher will first use the survey to

gather information. It will be the most appropriate tool since it is

inexpensive and quick. Survey questionnaires will be prepared to

gather the data needed. Questionnaires will be of a non-threatening

nature and can be completed within 30 minutes. The respondents will

grade each statement in the survey questionnaire using the Likert

scale with a five-response scale wherein respondents will be given

four response choices. The results will then be tabulated and

averaged to get the strengths and weaknesses of each question in the

survey. According to Saunders, Lewis and Thornhill (2001), the use of

the interview is to help the researcher gather valid and reliable

data which are relevant to the research questions. The in-depth

interview would be the second data gathering instrument. Although

this type of interview does not need to have a pre-determined list of

questions to be asked during the course of the interview, the

researcher opted to have a standard set of questions to be asked.

This would make the interview flow easier as well as the forms to be

filled out during recording more manageable. With this type of

reasoning, it can be argued that structured interviews are more

appropriate; however, it does not permit to deviate from the list of

questions such as to ask follow up questions regarding a response of

the interviewee which in-depth interviews more than allow to be done.

 

CHAPTER TWO

LITERATURE REVIEW 

FAST- MOVING CONSUMER GOODS

It is said that fast-moving consumer goods (FMCG) are those

products that move off the shelves of retail shops quickly, which

therefore require constant replenishing as these consumer goods

include standard groceries that are sold in supermarkets as well

as records and tapes sold in music shops. (Dictionary of

Business, Oxford University Press 2002) It is widely believed

that the FMCG sector is not affected much by inflation as

consumers continue buying essentials. But rising inflation forced

consumers to downgrade their preferences, which in turn put

pressure on the FMCG companies' margins. Companies like P&G

Hygiene and Healthcare recorded dismal top-line growth, but

continued to show double-digit profit growth. On the other hand,

their depreciation charges saw an upsurge. This is an indication

that these companies were making new investments, underlining and

their confidence in the sector's future growth potential to cut

their operating costs and improved their operating margins.

 Traditional consumer products like pastas, soaps and toiletries

are facing a glut and consumer down trading. New types of

consumer products like shaving equipment, household care products

and cosmetics, which have lesser penetration, saw volume growth.

In order to survive the slowdown in growth, companies should look

at becoming more cost-efficient by pruning debt burdens at

investing more money into new business streams and distribution

networks for volume growth, it is clear that the consumer wants

to see a wider variety of products and only those companies which

can spend on research and development to develop new products and

optimally use their resources will gain in the long term. FMCG

industry will enjoy something of a renaissance and attract the

best candidates back because so many ventures in the new economy

have not lived up to expectations. The researcher agrees that

FMCG people have frequently taken their years of experience and

moved into technologically driven companies enjoying continuous

growth and offered on-going opportunities to the loyal consumers,

as grocers have increased the need for category management,

having more opportunities for these people in FMCG companies and

support businesses, such as consultancy companies has benefited

for the process of responding to the needs of the consumers.

In response to the industry's constantly changing needs, some

professionals dedicated to the FMCG industry practice create real

value for clients through their established worldwide networks and

leading-edge approach to advisory services through leveraging

international and local teams to lend insight and best practices and

to offer valuable industry-focused ideas as FMCG’s indulge into the

process of retail goods as a result of high consumer demand or because

the product deteriorates rapidly. FMCGs include meats, fruit and

vegetables, dairy products and baked goods are highly perishable.

Goods such as alcohol, toiletries, pre-packaged foods, soft drinks and

cleaning products have high turnover rates. Moreover, sales staff

visit wholesale and retail businesses promoting and selling FMCGs and

that supply chain managers are responsible for getting the required

goods from the suppliers and into the stores as marketing managers’

research consumer behavior, examine sales trends and prepare marketing

strategies to suit target markets. The FMCGs sector offers

opportunities from production through transport and distribution to

wholesale. There is also strong demand for information systems that

can cope with and provide management information on high volume of

transactions that occur in those sectors - crucial for sales and stock

control strategies and means that there is an ongoing demand for

consumer preferences factors relating to the FMCG in Malta. 

Furthermore, retail industry representatives suggest that the FMCGs

sector is a great entry point and training ground for those interested

in marketing, companies are competing by offering flexible working

arrangements, quality leadership and management programs and

challenging roles. Fast Moving Consumer Goods is a classification that

refers to wide range of frequently purchased consumer products

including: toiletries, soaps, cosmetics, teeth cleaning products,

shaving products, detergent and non-durables such as glassware, bulbs,

batteries, paper products and plastic goods. ‘Fast Moving’ is in

opposition to consumer durables such as kitchen appliances that are

generally replaced less than once a year. The category may include

pharmaceuticals, consumer electronics and packaged food products and

drinks. Thus, levies which are taxes on products that the country

import, need to be removed if the people are to join the EU and it can

also be removed if they do not join the EU or if the Maltese opt for a

free trade area. During the year 2004, Malta has joined the EU which

is one single market, as the country cannot continue to apply taxes,

such as levies, that treat differently products that are produced in

the EU from products that are produced in Malta. The removal of levies

started in 1999 when a legal notice published a time frame for the

gradual dismantling of levies over a three-year period ending last

January 2003. It applied to all products that we import except for

agricultural products and agro-food products.  

REMOVAL OF LEVIES

On the other point, some levies were already completely removed

on a few products as of October, during the year 1999 - things

such as diaries (25 cents per kilo), nougat (Lm2.25 p/kg) and

computer tables (Lm1.60 per kilo). Last January 2000, levies were

also completely removed on another small range of products -

toilet paper (40 cents p/kg), insect spray (77c p/ltr), exercise

books (25c p/kg) and shirts (Lm1 per shirt). Products covered in

this range include furniture, paint, granite, marble but also

limited food and drink items such as savory snacks, fruit juices

and nectars and soft drinks. As a result of the gradual removal

of levies under this program, taxes on imported products

obviously started going down. Prices for consumers should also

have correspondingly gone down although the real impact should be

more visible after next January. But of course, the consumer’s

gain may have well been the local producers’ loss. The removal of

levies has forced competition not just among imported products

themselves but also with locally-produced products. As a result,

local manufacturers must now compete with cheaper imported

products and to do so they have had to embark on a restructuring

exercise to help them shape up for competition and stay in

business but some businesses may well find it hard to compete

against cheaper imports and would have to change their line of

production, scale it down or even stop production altogether,

some may find it easier to simply change their line of business

to importation.  Whereas others chose to get together in order to

be in a better position to compete. This "forced" competition

must also necessarily lead to a shift in investment patterns

since the local business community is now less likely to go into

business areas which have so far been protected from competition

for the simple reason that protection is no longer there. Instead

they are likely to engage in other investment in other types of

business, generating new economic activity. Now that the 1999

levy-dismantling program is on track, attention has turned to

food and agricultural products, where levy protection had so far

remained largely untouched. Aside, from the month of July of the

same year, a similar program for a gradual removal of levies has

started on agricultural produce and agro-food products. This is

being done under a scheme which is different from the 1999

program because it will couple the gradual decrease in levies

with a direct financial assistance to farmers and with a

reduction in the price of local products. The first products

targeted for lower prices include eggs, pork and chicken. In this

area, levies are at times so high and prohibitive that no

competing goods are imported at all, leaving the local market all

for the local products at times at prices that are hardly a deal

for consumers. However, because this time-frame overlaps with the

expected date of EU membership, it will need to be negotiated

with the EU during the ongoing negotiations process. In

particular, the time frame for the removal of levies will be a

sure bone of contention. But equally, Malta will be making the

case that the EU should help pay for the financial package,

whether in whole or in part rather than the tax-payer having to

foot the bill. The removal of levies is a condition for free

trade with the EU, which is a key component of membership, but

also of any form of free trade agreement. Clearly the removal of

levies exposed local furniture-makers to competition with foreign

firms and this presented both risks and opportunities. The

European Union is one single market. This means that you cannot

have any obstacles, such as levies, when selling from one EU

country to another. A levy is a tax that is paid by the consumer

so that the price of imported products is more expensive than

local products. It is therefore, a way of protecting local

manufacture. Although levies protect local producers, they tend

to reduce competitiveness because they reduce choice, quality and

at times, also retain high pricing for local products. This is

because, protected by the high prices of the imported product,

local producers had less incentive to improve efficiency. On the

other hand, the removal of levies exposes manufacturers to

competition because it removes protection. As a result,

manufacturers would need to adapt to the challenge of

competition. This required a thorough restructuring exercise and

new thinking on which products to produce and which markets to

tap.  No one is forcing to team up with others, but experience in

the EU and elsewhere, has shown that when small entrepreneurs

work together, without necessarily merging, they reap greater

benefits from their markets because they can each specialize and

combine their work to present a more competitive finished product

that better protect the industry’s interests such as when dealing

with government, trade unions and consumer associations.

Associations brought about sharing of information, especially

technology and innovative design, resulting in more efficient

production. In Malta, teaming up has also made sub-contracting by

larger firms easier, resulting in more work for the smaller

entrepreneurs. The FOI believes that Government is clearly making

concessions to the European Union by embarking on a program of

removal of protective levies starting from September 2002,

without getting from Europe any immediate gain for industry in

Malta. Local manufacturers do not even have the comfort either of

technical and financial assistance, whilst the European Union has

not as yet granted ‘tariff-free’ market access to Maltese

industry on the same products listed in the schedules appearing

in the Legal Notices that have partly removed protective levies

on competing imports from the EU.

 To aggravate matters further for Maltese industry, EU

manufacturers currently exporting products to Malta that are

similar to or substitutes for local food, beverage and tobacco

products, obtain export subsidies from the EU and are able to

afford to lower even further the prices of their products in the

Maltese market. As a result of the reductions of protective

levies, these EU manufacturers will be able to further intensify

their unfair competitive edge they currently hold in Malta. Until

a few months ago the Federation was given to understand that the

removal of levies with regard to certain products falling within

the Agro Industry would take place after accession to the EU. The

time frame now being proposed by Government for the removal of

levies is inadequate and unrealistic when viewed in relation with

the time-frames required for enterprises to receive the promised

technical and financial assistance and to implement their

restructuring plans. There is also hardly any time allowed to

permit gradual market entry into the EU countries, and for any

brand introduction exercise in the EU single market, which is

already a tough proposition given the economies of scale and

massive branding strengths of EU competition encountered both in

EU countries and in the Maltese market. The recent Legal Notices

issued relating to the levy dismantling programs on the Agro-food

sectors do not appear to have considered the structural problems

caused by Malta's insularity and double freight costs on exports.

Preferences of the Maltese Consumers 

The most suitable element for defining the market in such case

appeared to be consumers' preferences. The consumer preferences is an

ubiquitous reality as it appears to be connected in some way to the

ideal experience as consumers over consumption, consumer culture,

consumer behavior and consumer rights which reflects a world

undergoing rapid change. The FMCG may entail such effort to take one

step to consider in constituting consumer society and that the society

appears to be more well entrenched than it ever has been before as it

may changed through which human beings relate to a world of

consumption which is, at one and the same time, both constraining and

enabling, individualizing and conforming (Miller 1995:1). The

individual consumer is disaggregated as they are found, not to find

some clear coherent cultural imperatives, but often partially

connected, partially formulated and quite contradictory sources of

value and desire. (Miller 1995:53) As Gabriel and Lang describe the

contemporary consumer as unmanageable. What they mean by this is that

the nature of consumption is becoming more and more spasmodic and ad

hoc. It is very difficult to understand consumers if consumers are

inconsistent, unpredictable and contradictory, ‘today, there is no

single entity, the consumer' (Gabriel and Lang, 1995 p. 191).  

The experiences that consumers have are so divided that consumers are

indeed 'unmanageable' or 'uncontrollable' as FMCG have efforts to push

aside on approaches that see consumption as entirely liberating to

construct as to what it actually means to consume. In addition, prices

and the intended use of goods, the decisional practice of the Office

for Fair Competition and that of the Commission for Fair Trading show

that both institutions perform other tests related to the demand side

to delineate the relevant market. In the Beverage Companies Decision,

10 the OFC pointed out that, as regards the market for the retail of

beverages off premises, the retail of beverages through supermarkets,

grocers, or discount stores were to be seen as separate from the

market for the retail of beverages through cash and carry outlets.

Since purchasers do not enter supermarkets, grocers, or discount

stores with the aim of purchasing exclusively or primarily alcoholic

beverages, but in most cases to buy food items, the latter stores were

not a submarket of cash and carry outlets for beverages, but instead

constituted a separate market.

 The removal of levies on FMCG had a major impact on this business

sector various changes occurred in the market which effected various

players.  However this was not the first time in recent years where

there was a complete upheaval in the market.  Back in 1986 following a

change in government, the new nationalist government had changed the

commercial laws thus allowing free trade and no importation

restrictions.  Prior to this Malta had been adopting the bulk buying

system for several years.  Imports in the FMCG sector were controlled

by the government.  The system had been put in place to protect the

local industries and control inflation.  The bulk buying system meant

a very limited choice for the consumers.  Examples of this were having

very few brands to chose from when it came to products not having any

local manufacturers locally.  Products like canned tuna, corned beef

and various others were bought through a bulk buying system controlled

by the government.  Most of the times the brands imported were low

priced with quality matching the price.  The government also

prohibited importation of products competing with those manufactured

in Malta.  On the island only local choclate, biscuits, pasta, milk

and others could be found.  This meant that big brands like Cadbury,

Mars, Barilla, Bahlsen and Danone amongst others were absent from the

market.  The Maltese were ‘hungry’ for consuming such brands

especially when on foreign TV stations, which were viewed locally, the

brands could be seen advertised but the Maltese consumers could find

them nowhere in the supermarkets. In 1986 these barriers to

importation were removed.  At this stage importers and distributors

found the opportunity to expand their business.  Various new companies

were also set up.  The turnover of these companies exploded during the

years to follow.  Finally there was freedom of choice for the Maltese

consumers to purchase FMCG.  The market was now flooded with brands

produced all over the world especially from Europe.  Did this however

mean that the local manufacturers for FMCG were to collapse?  In order

to protect the local industry the government introduced levies on most

of the imported FMCG.  This meant that most of the foreign brands in

the market commanded a premium to the local competitors. The levies on

FMCG varied from one product or sector to another, depending on the

level of protection which the government wanted to impose.  High

levies were placed on milk, pasta, poultry and tomato products.  As an

example local milk was sold at approximately Lm0.26 per litre whilst

foreign milk was priced to consumers at around Lm0.68 per litre.  Even

though these foreign products with high levies were available in the

market their market share was close to nothing since the premium

charged was enormous.

The government had succeeded to protect the local industries. May 2004

brought along the second major change in the FMCG sector.  On Malta

joining the European Union all the levies, which for several years had

been protecting the local manufacturers, were removed.  This meant

that all products being imported from the EU would not be charged a

duty on arrival to Malta.  For the first time foreign products started

to compete on the same level playing field as the local products.  The

products in the FMCG sector which benefited from the removal of levies

was endless.  At this point the questions amongst politicians,

businessmen and consumers were also endless.  How were the removal of

levies going to effect the local manufacturing companies?  Were the

jobs of their employees at risk?  Was it now a reality that local

brands would collapse and lose market share or were the local brands

strong enough to face foreign competition?  After all the Maltese had

been consuming these brands forever.  Would the foreign brands be

cheaper than the local brands? The Maltese consumer was eagerly

waiting. Well, ultimately it was the consumer who was to decide and

provide the answers to all the questions being forwarded.  The

perception around had always been that the Maltese consumer believed

that foreign products were of superior quality to the locally

manufactured products. One of the reasons for this was probably as

mentioned previously, the Maltese had access to satellite TV which

advertised various big foreign brands whilst advertising of local

brands had so far been very limited.  On the other hand some argued

that the Maltese would patriotically continue consuming local product

to protect their interests. 

After nearly three years since the removal of levies we now have a

more clear picture of how the market transformed itself.  We now have

the answers to most of the questions which had been asked.  The

foreign brands had an explosive success during the first few months

following the removal of levies.  This was expected for various

reasons.  Firstly the marketing held by the entities in favour of the

E.U., who had been preaching that prices of various foreign products

would decline drastically and become more accessible, had pumped

eagerness into the Maltese consumer to consume these brands.  The

consumer wanted to try out these foreign brands some of which had been

previously available at very high pricing.  But besides these brands

in May 2004 the market was flooded with new foreign brands.  Brands

which previously had not been available.  The reason being that due to

the high levies the sectors for foreign products was a niche one in

most areas and few importers risked importing these brands.  But as

mentioned once the levies were removed new brands appeared in all

departments.  The question now was not only will the local brands

struggle but also how many of the imported brands will survive? After

a year following the removal of levies the market started settling. 

Some foreign brands survived while other pulled out.  Surprisingly in

some sectors the local brands remained strong whilst in others they

lost market share.  

However it was only in very few sectors that local brands completely

collapsed, as was the suspicion of many.  In some sectors local brands

lost market share but remained brand leaders.  In other sectors like

milk, the local produced milk remained by far brand leader but somehow

the sector grew. The researcher will be looking at the development of

different sectors following the removal of levies at a later stage. 

First it is important to analyze the consumer, local manufacturer and

importer behavior which led to the present day situation. 

The Consumer

 The assumptions made by many that once levies were removed consumers

would shift to foreign brands were proved wrong by the consumer

himself.  What happened in the post-levy scenario was that the Maltese

consumer tried what was available, compared and then decided.  The

choice was vast.  Comparisons were made over a prolonged period. 

However, Maltese consumer did no only compare price but also, if not

mostly, quality.  Quality was taken for granted in the assumptions

previously made.  But in fact the consumer gave great importance to

quality when faced with comparisons and choice.  This survey conducted

for the purpose of this study definitely proves this.  When those

answering the survey were asked “What do you look for when buying a

product?”, 59% answered “quality” whilst 41% answered “Both quality

and price”.  In fact none of the consumers surveyed answered that they

only look for price advantages when buying a product.  Another

alarming statistic which came out of the survey carried out was the

following when asked: “What would entice you to change the brand you

usually purchase?” 97% answered quality and only 3% responded that

they would shift brand for price advantages.  Furthermore when asked

“If a product manufactured locally was of equal quality and with the

same price range as a foreign product, which would be purchased?”  64%

answered local, 26% answered foreign whilst 8% had no preference. 

Finally when asked whether they “prefer local or foreign products” the

results were quite balanced or rather undecided.  32% answered local,

26% answered foreign whilst 41% had no preference. The results from

the survey illustrate that the majority of those interviewed have no

preference to the country of origin of the product.  It is also clear

that the Maltese consumer gives great importance to quality when

choosing a product.  Quality along with a price advantage would

determine their choice, but never price alone.  The answers from the

survey conducted, indicated that the Maltese consumer, after trying

various different products, made their choice which was probably a

balance of quality and price.  In fact as we will see later on when

analyzing different sectors, most of the brands offering inferior

quality products at very cheap prices did not survive.

 

The Maltese Manufacturer

Long before Malta joined the E.U., the local authorities had started

encouraging local manufacturers to start gearing up for what was

referred to as the “E.U. challenge”.  There were various areas in

which manufacturers for FMCG in Malta had to improve on. Firstly it

was a well known fact that various local manufacturers would launch a

product of excellent quality but as market share would increase, the

quality would start to decline.  Also various manufacturing plants

were not up to E.U. standards and also possessed outdated equipment

and machinery. This was mostly evident in the packaging of most

locally produced goods. The packaging both in quality and design of

various local products in the market looked mediocre when compared to

foreign products.  However following the continuous advise given to

these companies different companies took a different approach.  Some

companies started to gear up for the EU challenge.  They started

investing heavily and upgrading both their facilities and their

products for the tough times ahead.  Others did not react or their

efforts were minimal.

Two interviews were carried out as part of the research for this

study.  These interviews involved two CEO’s from two major companies

in Malta.  They come from two totally different sectors, namely the

processed tomato products sector and the paper products sector (toilet

paper, napkins etc). The CEO from the tomato products manufacturing

company explained how joining the E.U. was initially regarded as a

threat but it finally turned out to be also an opportunity.  The

brands his company had been producing for several years had become

brand leader locally.  They had invested over the years and their

company was ISO certified.  Admittedly he stated that for several

years the products they produced were successful not only because of

the excellent quality they produced but also because they operated in

a protected sector due to the levies imposed.  In fact the levies on

tomato products were very high at around Lm0.80 (€2) per liter. 

Despite being one of the few companies with a plant comparing well to

other plants in the E.U., the company was well aware of the

consequences of joining the EU.  Their strategy to face reality was to

tackle two areas.  Firstly was to continue producing high quality

product.  More importantly was, according to him, marketing.  For

about three years before joining the E.U. the company continuously

invested in advertising by promoting their brands.  The message in

most of their advertising was that Malta produces superior quality

tomatoes to their neighbors abroad. 

One of the company’s advertising campaigns even consisted of a

consumer in Florence Italy with two plates of tomato products, one

produced in Italy and one being one of their brands.  Italian

consumers on this TVC were asked to blind taste both products.  The

Maltese product came out victorious.  The massage was “Italians (well

known for their excellent tomato products) prefer the Maltese

tomatoes. The CEO continued by stating that the removal of levies

would obviously effect the market share of the products which his

company sells.  But the big question was “To what extent?”  He stated

that despite losing market share he is satisfied that although the

market has become fragmented with foreign tomato products, the local

tomato products have remained brand leader in this sector.  Finally he

stated that the E.U. also presented an opportunity to his company

since various contracts with large supermarket chains especially in

the UK were acquired.  At a later stage the tomato products sector

will be analyzed to see how this sector developed over the past four

years. Another CEO interviewed, from the paper products sector

demonstrated a different approach.  The CEO explained that on paper

product the levies were actually removed before joining the E.U.  In

fact these were removed in 2001.  However, funnily enough the effect

of the levies had only started having its effect in 2004 when all the

levies were removed. As a company they also knew the threat from the

removal of levies.  Unlike the other CEO interviewed, the CEO from the

paper products admitted that their plant was not as efficient as other

mega companies abroad. Also whilst the mega brands such as Foxy,

Scottex and Kleenex were constantly advertising and investing heavily

in promoting their brands, the budget for advertising the local paper

products brands was minimal.  Also this limited advertising was only

carried out following decline in sales.  Once again this sector will

be analyzed in detail later on. The local manufacturer had ample time

to prepare himself for the E.U. challenge.  It is evident that if the

necessary preparations before joining the E.U. and with the right

strategies local brands were able to take on the competition offered

by foreign brands at competitive prices.  It was only those companies

which fail to wake up or woke up two late which collapsed or

registered high declines in turnover and market share. 

 

 

The Importer In Malta there is a good number of companies whose business is

the importation, distributing and marketing of brands in the

FMCG.  As mentioned earlier these companies bloomed back in 1986

when the market was open.  It is important to note that these

companies had a variety of successful brands in the local

market.  One has to keep in mind that levies were not present

across all the board of FMCG or in some sectors the levies were

very low.  This allowed the importers of FMCG to compete in the

local market sectors where no levy or low levies were present

consisted of canned tuna, chocolate, milk modifiers, coffee, tea

and various others.  The removal of levies in 2004 now presented

an opportunity to expand their portfolio of brands and obviously

their turnover. Some importers had for a number of years before

the 2004, started fishing for possible new brands.  Some launched

foreign brands at high prices, their strategy being to be first

in the market.  They were aware that sales would be on the low

side with the high pricing but being a first entrant in the

market is always an advantage.  In other sectors, an example

being yogurts, the quality of foreign yogurts like Danone and

Muller was much superior when compared to local yogurts.  So even

at high consumer prices these brands established themselves

locally.

 Other importers adapted a different strategy by launching brand

before the levies were removed at post levy prices.  They did so

to enable them to achieve market share before competition. 

Obviously by doing so they registered low MU or even sold at a

loss.  But this was a cost they decided to incur with the long

term objective of reaping the benefits in the post levy

situation. Once the levies were removed the market was invaded

with new brands.  Some importers decided to take the price route

by working for low mark ups and try to match and sometimes beat

local prices.  Others charged a premium to local brands and

invested heavily in advertising and promotions.  However despite

the success of foreign brands in the first months the market then

started to settle.  Some consumers reverted back to local brands

whilst other stuck with the foreign brands. When one looks at the

whole picture of the market following the removal of levies

various observations can be made.  Local manufacturers who

invested in equipment to enable to compete with foreign brands

stood a better chance of surviving.  Also those who prepared

themselves for Malta’s entry in the E.U. by advertising before

the event had an advantage over competition.  Importers who

instead of focusing on low prices invested in advertising and

promotions also seemed to grow at a faster rate.  But ultimately

it was the consumers’ behaviour which commanded the market.   

The Maltese consumer does not seem to have a preference for

foreign brands over the local brands.  Price and quality were the

fundamentals for a successful brand but the Maltese consumer

seems to give greater importance to quality but competitive

pricing also has its important role.  It is however important to

analyze different sectors and study the behaviour of the supplier

and the consumer in the specific sectors.  The sectors which will

be analyzed are toilet paper, tomato products, pasta and dairy

products.

 

Toilet Paper 

Levies on toilet paper were removed four year before Malta joined

the E.U.  In fact the levies in this sector were removed in the

year 2000.  The local brands at this stage completely dominated

the market.  From the sales statistics of four major supermarkets

it is evident that local brands had 94% market share.  Until then

the price difference between local and foreign brands was

substantial, with foreign brands being sold at a high premium. 

When the levies were removed mega brands like Foxy, Kleenex,

Andrex and Scottex reduced their consumer prices.  The average

premium charged by these mega brands reduced from an average 80%

premium to an average of 25% premium.  Also the market

experienced mew entrants of unknown brands which matched the

prices of local brands. Whilst the mega brands offered superior

packaging along with better quality, the unknown brands offered

more or less the same as the local brands. However despite all

this no major changes occurred in the market.  Local brands

remained for the next four years brand leaders by far.  In fact

market share(MS) for the local brands only declined to 80% over

the four years.  This was a surprising result for two reasons. 

Firstly it was expected that local brands would suffer

dramatically especially since the market became flooded with

foreign brands.  About forty new brands had appeared in this

sector over the four years.  Secondly the local toilet paper

manufacturer had not geared up for the EU challenge.  This is

evident in the interview held with the CEO of the only

manufacturing company of toilet paper.  One has to note that in

Malta only one paper products factory exists.  This company has

two brands which it sells through its sales force whilst another

three brands which are manufactured for a sales marketing

company.  In the interview with the CEO, he admitted that no

major investments were made to combat the foreign imports. Until

2004 no marketing activity whatsoever was carried out to promote

the local brands.  No major investment in equipment was made to

upgrade the local products. 

 However the worse was yet to come. Funnily enough in 2004

foreign brands started gaining MS dramatically.  By the end of

2004 MS for local brands dropped to 65% in 2004, 60% in 2005 and

57% in 2006.  This probably occurred due to all the euphoria that

foreign brands in general would decline in pricing after Malta

joined the EU.  So even though levies on toilet paper were

removed four years before the effect was only felt in 2004.  It

was only at this point that the local brands reacted.  However, I

must comment that the effort was miserable.  Asked about how his

company reacted to foreign brands the CEO stated that in 2005 a

marketing campaign was launched over a six month period.  This

consisted of prices awarded (in the form of a lottery) for

consumer of two of the local brands with the prices being a car,

holidays abroad and others. This campaign was not even backed by

TV advertising which is considered as the strongest marketing

media in Malta.  Another strange strategy (according to me) was

that this local manufacturer started importing a foreign brand to

combat the other foreign brands.

By 2006 the brand reached a MS of 6%.  Another interesting

statistic is that in the consumer survey carried out for this

study 36% of those interviewed said they preferred foreign toilet

paper brands.  So in a nutshell 64% of Maltese consumers prefer

local brands and yet the market share for local brands declined

from 94% in 2000 to 57% in 2006.  In my opinion this result is

not a bad result and when one considers the poor efforts made by

the local manufacturer to gear up for the E.U., I would have

expected less.  This probably occurred due to the fact that the

quality difference between products in this sector is not so

noticeable and quite minimal.  As mentioned earlier the Maltese

consumer readily switched brands for superior quality.  This was

clearly evident by the 97% of the consumers interviewed.

 

Pasta

Pasta was the sector in which local brands were expected to

suffer drastically.  The reasons being the following:  Firstly

big foreign brands had already been present in the market since

1986.  Despite a levy of 60c per kilo on foreign pasta the main

two foreign brands Barilla and Agnesi had achieved encouraging

market shares and high distribution in the market.  The premium

charged by these foreign brands was about 100%.  Barilla and

Agnesi was 58c for 500g of pasta whilst local brands wee selling

at 29c.  At this time local brands were clearly dominant with 80%

market share however foreign brands charging double the price

achieved a respectable 20% market share. 

 

The Maltese consumer was aware of the high superior quality of

Italian pasta when compared to local pasta but at that stage the

price of foreign pasta was too high.  Above all foreign pasta was

heavily advertised on Italian TV stations which are viewed

regularly in Malta. Maltese consumers wee surely to switch to the

mega brands once levies were removed.  In fact this happened

instantly when Malta joined the E.U.  In May 2004 sales of

foreign pasta shot up alarmingly.  Maltese consumers did not

expect the prices of Italian pasta to decrease from Lm0.58 to

28c.  Local manufacturers’ only defence was to lower their prices

to 24c.   

However a 4c premium on 500g of pasta was a premium which the

Maltese consumer was ready to pay for a far superior quality,

both in taste and packaging.  Also new entrants in the market

with Italian brands were taken the low price strategy and their

pricing was lower than the only so called Maltese survivor “Le

Rose”.

 

Market shares changed as shown in the table below:

Local 2003

2004 Leviesremoved in May2004 butmarket shareare calculatedon a fullyear. 2005 2006

Le Rose 70% 19% 10% 9%Pastaluovo 3% 1%    Angeli 7% 2%             Foreign 2003 2004 2005 2006Barilla 10% 29% 40% 42%Agnesi 5% 14% 12% 10%Poiatti 2% 16% 13% 10%Divella - 3% 2% 4%Pasta Zara - 2% 2% 2%BellaItalia - - 1% 2%Campagna - - 6% 7%Buitoni 3% 12% 9% 10%others - 2% 5% 4% 

The above shows that market share of local brands declined from

80% in 2003 to 9% in 2006.  It not surprising at all since in the

consumer survey carried out 78% of those interviewed stated that

they prefer foreign pasta to local. 

Tomato Products

Prior to the removal of levies local brands had the total market

under their umbrella.  In fact 99% market share belonged to the

local brands.  This was not surprising for two reasons. 

Primarily the quality of local tomato products was excellent and

secondly the sector was protected by means of an 86c per kilo

levy on foreign products.  This meant that few importers risked

importing foreign brands with such a steep levy.  Only a handful

of foreign brands were available.  The 1% market share was at

such a pitiful result for the foreign brands since the Maltese

consumer had an excellent local product at half the price of the

foreign products. However as the CEO of a local manufacturing

company explained following the removal of levies a drop in

market share and sales was inevitable.  The question was to what

extent would the drop be.  The local companies started to prepare

for the EU challenge long before Malta joined the E.U.  The CEO

explained how his company invested in advertising and promotions

years before 2004.  Besides advertising their own brands they

also joined forces with other tomato product manufacturers as

local farmers promoting heavily the excellent quality of local

tomatoes when compared to foreign tomatoes.  He explained how

heavy campaigns on TV, billboards, bus shelters and various other

media helped to convince consumers that Maltese tomatoes were of

the best quality.  This seemed to have worked since from the

consumer survey 85% of those interviewed believed that local

tomato products were of superior quality to foreign.

 

The real test however arrived in May 2004.  Foreign brands were

imported like mad.  This was by far the sector in which the

number of foreign new entrants increased most.  Foreign brands

were all over the market.  Various price points were evident

however the majority of the foreign brands were selling at high

discounted prices when compared to the local products.  The CEO

explained that at this point local producers had to lower their

prices but still maintained their brands at a premium to the

imported brands.  Their strategy was to maintain a premium and

continue to advertise heavily.  They also promoted their products

occasionally by utilizing on pack promotions which did match

foreign prices, but these offers were sold for very limited

periods.  A clever TV campaign was one were a TV personality

carried out blind tests in Florence asking Italian consumers to

compare the taste of Italian tomato products to the local.  The

result was predominantly a preference to the local products. 

 However as mentioned earlier consumers shifting to foreign

brands was inevitable.  In fact below one can observe the decline

in market share for the local brands.

  2003 2004 2005 2006

Local TomatoProducts

98% 65% 87% 82%

Foreign TomatoProducts

2% 36% 13% 18%

 

It is evident from the above statistics that in 2004 Maltese consumers were tempted to experiment in trying foreign products. In fact market share for foreign increased from 2% to 36% to the expense of obviously local brands.  This also occurred since towards the end of 2004 various foreign brands were discounting heavily to avoid expired stocks since they had projected higher sales and imported high stocks.  In 2005 the Maltese consumer shifted back to the local products.  The advertising campaigns had succeeded.  Surely the local manufacturers are satisfied withthe drop.  Unlike other sectors, mainly pasta, the market share for tomato products declined from 98% in 2004 to 82% in 2006.  

 Another bonus for the major manufacturer who was interviewed wasthe fact that since Malta joined the E.U. they have succeeded to enter foreign markets.  He stated that they had been awarded contract for the Tescos and Sainsburys of this world.  All in alltomato product manufacturers have managed to maintain if not increase their production since 2004.  Besides the successful advertising campaigns carried out one must finally mention that local tomato product manufacturers have constantly invested in modernizing their factories to E.U. standards which enabled them to compete with the EU giant manufacturers.

 

Dairy Products (Milk)

The battle for market share in this sector following the removal of levies was quite interesting on to a certain extent unique.  The levies on milk were the highest with a levy of ___ per litre.  In the Maltese market only one brand of milk existed selling at a very low price of 26c per litre.  No one dared to import milk and no one can blame them.  Who would succeed to sellan imported brand of milk at mort than four times the price of locally produced milk. However once the levies were removed all importers knew what a great opportunity existed due to the enormous size of the market.  One important factor was that the local milk was only available as fresh with not more than a threeday shelf life.  This was obviously not very convenient for the consumer. 

All around Europe UHT milk proved to be popular due to the convenience of storing the product at room temperature with a long shelf life.  Also local milk was poor in quality and this was evident in one of the clauses which Malta had accepted on joining the EU which was that local milk had a time period to improve the quality and during this period it was not permitted that local milk would be exported.  Once the levies were removed a handful of UHT brands were imported and started competing on a same pricing level as local milk.  As predicted the Maltese consumers went all out to purchase foreign UHT milk.  In fact mayimporters faced out of stock situation initially due to the greatdemand.  At this stage an advertising war started.  The local producer advertised “Fresh is better” whilst importers advertised“Convenience”.  The situation of this sector was earlier described as unique since local milk and foreign UHT milk were two different products fighting for the same market.  Both parties advertised heavily since there was a lot at stake.  Following the mentioned out of stock situation importers importedexcess stocks, but the local milk started coming back.  This was probably due to the consumer euphoria fading out gradually.  At this stage importers faced expiry date problems due to a slowdownin sales and at this point a blood bath took place between

importers desperately trying to get rid of stocks.  At the beginning of 2005 the market stabilized again.

 

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Zara Case Study Analysis

Blogging is a very interesting learning experience as it allows multitude of benefits on various aspects of my personality. Primarily, blogging is an opportunity for me to explore an assortment of topics, on this case Zara and Topshop and their communication tools, and learn new and useful information. I am also able to express myself particularly my personal opinions on such topics. The development of my critical and cognitive skills is enhanced. My technical skills are also improved particularly on my ability surf the Internet and obtain important facts from various sources. On the case of Zara, I learned that it is among the world’s most popular fashion retailers and leading clothing brands for men and women customers. According to an article in BusinessWeek in 2004, Zara is remarkable for coming up with a newproduct and release it on store outlets in a quick period of two weeks in contrast to a 9-month industry average. Furthermore, Zara produces and launches more or less 10,000 new designs annually. In terms of its communication tools, Zara maintains an updated, innovative, and inclusive corporate website (www.zara.com), where essential facts about the company, product catalogue, collection, store outlets, and other information are posted. This is considered as their major communication tools provided that they take advantage of the benefits of electronic technologies in marketing their products. Accordingly, Zara holdsa zero-advertising policy, where most marketing experts believe to be unusual. Most companies exploit the advantages of advertising their products and services in various media and their marketing strategy is linked with various advertising techniques. However, Zara deviates to this standard strategy as they focus more on investing through opening new store outlets worldwide. Zara’s website is mainly Spanish in language. On the other hand, Topshop is recognized as an international women’s

retail fashion brand. It includes clothing and fashion accessories as main products. It started as an unfashionable brand and was reinvented to be fashionable. In 2007, Topshop was a retail fashion industry leader when supermodel Kate Moss had a collection named after her. This collection still lures the company’s target market. A significant number of unfair employment conditions reports were directed against the company management and were publicized in some online newspapers like TheSunday Times and The Evening News. In relation to communication tools, it maintains as an official website (www.topshop.com), where essential corporate information on products, sales, accessibility, return policy, and other company data were presented. Like Zara, the website is updated, innovative, and inclusive. English is the main language used. In general, the blog writing experience is really fulfilling. I gained a lot of information about some of the world’s leading retail fashion companies particularly their communication tools. Blogging increases my cognitive and technical skills as it allows me to acquire new sets of information and develop my Internet surfing ability. I learned that blogging is a contemporary mode of written communication that transcends geographical boundaries because it uses the convenience of the cyberspace. If I write a blog about something or someone, I am able to increase information database in the World Wide Web (www), which in turn tantamount to helping other people by providing them relevant information on something or someone. All in all, I will continue blogging not just to learn more things but to develop my talent in writing.   You might also like

The analysis of retailing environment in China

Introduction

Following the low profit times, every retailer keeps trying different

market strategies to maintain or extend their business. Zara, one of

the clothing companies in Spain is known as a very successful

international retailer in these years. Zara began internationalizing

in 1989 and gains unprecedented success all over the world via its

international expansion.

It’s a serious task for international retailers to find a potential

market for them to expend their business. Because developed countries’

markets are getting saturated, more and more retailers are targeting

at those emerging markets. According to Jones (2002), emerging markets

are considerable, expandable and unsaturated markets. As Garten (1996)

defines, emerging markets are so-called Chinese Economic Area (China,

Hong Kong, Taiwan, South Korea); Indonesia and India; South Africa;

Poland and Turkey and, in Latin America, Mexico, Argentina and Brazil.

China and Russia are two of the biggest countries in the world. The

following charts describe two nation’s GDP, population and the ratio

of total consumer expenditure to clothing expenditure.

According to above charts, China has a huge amount of population and

its GDP is growing year after year whilst Russia is developing slowly.

These two countries are both attractive to international retailers.

However, considering the potential, China might be the biggest

emerging market in the world. This paper is going to analyze Zara’s

character, explore China’s market and presume that how Zara entry into

China.

The analysis of Zara

Zara, a brand of Inditex, was established in 1975 in Spain. It

provides consumers with affordable and fashionable clothing on a

weekly basis and sale through charming, spacious stores (Euromonitor,

2003). Furthermore, it offers different ranges for different market

segments, which include men’s, women’s and kid’s wear. Zara’s

marketing strategies could be analyzed by 4P and SWOT theory.

 

PRODUCT

Zara offers various styles which contain formal, casual, occasional,

lingerie, underwear and swimwear to their customer. Zara would plan a

core collection, composing nearly 50% of its forecast requirements.

The rest 50% would be sourced opportunistically according to demand

trends during the season, and could be delivered to any store in 2

weeks (Arnold, 2002). This fast fashion strategy could maintain

fashion freshness and reduce stock expense. About 50% of the clothes

are made by Inditex-owned plants, the rest are produced by outside

suppliers. 80% of all apparel is manufactured in Europe, mainly in

Spain and Portugal (Euromonitor, 2003).

 

PRICE

Zara’s products are not only fashionable but also affordable. Due to

the successful operation plan, they do the vertical integration from

fabric purchase to distribution. Therefore, they products are known as

mid-low price with mid-high quality. However, as an international

retailer, Zara’s price is different in each country because the

effects of macro and microenvironment such as exchange rates, tax and

transport. Another strategy Zara has used is refund guarantee.

Customer could refund purchases in any store but within the same

country, and credit will be given for returned items according to the

prices marked in the original tags, disregarding any later sales

promotions (Arnold, 2002).

 

PLACE

According to Euromonitor (2003), Zara’s main distribution centre is

based near Arteixo in Spain from where merchandise is shipped to

stores several times a week.  Another Zara’s strategy is that all its

stores are located in prominent city center sites. Window display is

changed per month and decoration is changed every two years. AS Arnold

(2002) points out, clear lighting, white walls and ceiling, and few

photographs in every shop, are aimed at creating an elegant atmosphere

while spotlighting the clothes.

 

PROMOTION

In terms of promotion, Zara is caviar to the general. Comparing with

other rivals, Zara only advertises twice a year and no advertising

will be done when they open new store. However, due to its clear-cut

brand image and prominent location, Zara can always catch consumer’s

eye.

Sourcing from: Euromonitor, 2003.

 

The analysis of retailing environment in China

In order to minimize the risk and uncertainly, it is essential to

analyze carefully the marketing environment. China is a huge,

undeveloped and full of potential market. The following sector is

going to represent the analysis of China’s macro environment by PEST

and national advantage for retailers by Porter’s Diamond model.

 

 

 

Macro Environment

 

Political factor

Political factor is the most essential issue for foreign retailers in

China because of the Communism and bureaucracy. According to Foster

(2005), it is tough to get through the bureaucracy that exists in

China and gain access to sites and opportunities to expand. It is not

necessary to have good connection with the powerful people in the

government. However, as Kwan, Yeung and Au (2003) point out that the

right connection can significantly help foreign retailers to reduce

the time required in negotiations, and enhance the success of business

transactions when dealing with the bureaucrat. Kwan, Yeung and Au

(2003) also indicate that the legal system is still not complete and

the terms of laws and regulations are often flexible. Therefore,

foreign retailers should have the knowledge of the connection with

government in order to expend their business smoothly.

Economic factor

As mention in introduction, China’s economics are getting higher year

by year. In substance, there are numerous economic indicators which

are considerable for retailers such as GDP growth rate, exchange rate,

inflation rates and employment rate. A stable growing GDP is

attractive to retailers because a rapid growth will result in

inflation while a delaying or dead growth will result in decreased

consumer spending (Kwan, Yeung and Au, 2003). According to Euromonitor

(2003), GDP growth rate is increasing steadily and the inflation

growth rate is very low since 1999. Moreover, China government adopts

exchange control to avoid the sharp appreciation of RMB. Following

with the influx of foreign investments, there are more and more job

opportunities for China in the urban areas. However, with the increase

of rural- urban migration, the urban unemployment rate started to rise

since 1985. Furthermore, it is expected that even with increase in

jobs in the urban after China join the WTO in 2001, the urban

unemployment rate will continue to go up due to the stream of rural-

urban migration (Kwan, Yeung and Au, 2003).

 

 

Social factor

Social factor involves demographics and sociocultural. China has more

than 1.3 billion people that are about one- fifth of world’s

population. The huge amount of population stands for a huge market.

Furthermore, most of China’s cities are undeveloped; this situation

pulls lots of foreign investment into China. In the last 20 years, it

is a trend that more and more rural residents migrate to urban areas.

As a result of that, the abundant and cheap labour power generates a

tendency of China fever.

According to Kwan, Yeung and Au (2003), China’s consumers are not

fashion innovators but they tend to care about the self-image and

reputation. As McWilliam and Chernatony (1989) indicate, people would

like to purchase clothes that can help them to represent their desired

images. China’s consumers are also influenced in their purchasing by

famous people. AS a result, endorsement becomes a very popular

marketing strategy in China.

 

Technological factor

In recent years, China government injects numbers of capital in the

rebuilding and upgrading of the national infrastructure and inventing

new technology (Beijing Consultech’s report, 1999). They try to

construct a high tech environment to match with their growing

economics. However, with the low credit card popularization and

traditional modes of expenditure, the new fashion expenditures such as

on-line and home shopping are still in their infancy (Euromonitor,

2004).

 

National Advantage for Retailers

 

Factor conditions

According to Porter (2004), factor conditions are factors of

production such as labour, land, natural resource, capital and

infrastructure. Moreover, a disadvantage might be an advantage. Local

disadvantages in factors of production force to innovate to over come

their problems. This innovation often results in a national

comparative advantage.

The big number of population in China provides retailers with a huge

and cheap labour power. Furthermore, according to Day (1996), many

foreign investors had experienced difficulties in sourcing products in

China such as basic raw materials and components due to the poor and

unsteady quality, late deliveries and shortage of quantity with local

suppliers in the past. However, following with foreign investment and

government’s capital, suppliers are getting more competitive. China

becomes the most popular outsourcing provider.

 

Demand conditions

A sophisticated domestic market is an important element to generate

competitiveness. When the local firms face a sophisticated market,

they need to keep improving their product because the saturated market

demands high quality products.

In the last 20 years, China’s consumer were lacking in the knowledge

of products because the low education and the sequel of the Cultural

Revolution. Nevertheless, China’s economics is growing and consumers

are also getting more sophisticated and demanding (Kwan, Yeung and Au,

2003). As a result, the high demanding market pushes retailers to

innovate. Furthermore, because of the cheap labour, more and more

outsourcing firms come to China to cut down their cost. Come along

with the high demand, China rises their technique level and provides

more skillful labour to attractive foreign firms.

 

Related and supporting industries

Porter (2004) argues that a set of strong related and supporting

industries is important to the competitiveness of firms. When local

supporting industries are competitive, firms will gain more cost

effective and innovative inputs.

Compared with other countries, the fabric industry is very competitive

in price because China is the largest cotton producing cotton. In

terms of the apparel retailers, they could gain advantage form their

competitive suppliers and become more competitive.

 

Firm strategy, Structure, and Rivalry

More local rivals is an advantage since competitive rivals spurs firms

to innovate and improve. Local competitors forces firms to surpass

basic advantage which the home country may enjoy (Quick MBA, 2005).

In the case of retailers in China, the competition is very intense. In

the past, price is the main point. However, since more and more firms

join the war, price becomes less important. Retails are forced to

innovate and improve such as new products or better customer service

to enhance their capacity.

 

Government’s Role

As Quick MBA indicates (2005), the role of government in Porter’s

model is to encourage firms to raise their performance, stir early

demand for advanced products and stimulate local competition by

limiting direct cooperation and enforcing antitrust regulations. In

short, government should play a supervisal and managing role. 

China government adopts a serious policy to enlarge the advantage of

retailing environment. According to Euromonitor (2004), China

government will issue series of policies to enhance the scale of using

foreign capital in business field and allow foreign retailing

corporations to enlarge their scope of purchasing activities in China.

 

A presumption of Zara entry into China market

 

Market entry strategies

As Bennett (1998) mentions when a company enters a foreign market, it

needs to consider carefully all the available options, the costs, the

distance, firm experience and size, possible loss of control and the

risks involved. Furthermore, the market entry strategies chosen have

to relate to the company’s overall strategies. The methods for

entering oversea markets are:

          Exporting- is the marketing and direct sale of domestically

produced goods in another country.

          Join venture- is a collaborative arrangement between unrelated

parties which exchange or combine various resources while remaining

separate and independent legal entities.

          Licensing/ Franchsing- consents a company in the target market

to use the property of the licensor such like trademarks and

patents.

          Direct investment- is the direct ownership of facilities in the

target market.

In Zara’s past expansion, they prefer owed- stores, franchising and

join venture. According to Foster (2005), Since December 2004, three

years after China joined the WTO, fashion retailers can pretty much do

what and how they want. However, as above point out, China’s political

environment is still a big issue to foreign retailers. Zara might need

to face strict restrictions on the location and number of outlets they

could open. Therefore, having a local partner will be handy for Zara

to deal with the bureaucracy in China. Both franchising and joint

venture are co-operative entry mode. However, considering macro and

micro environment, joint venture will be the most beneficial entry

mode for Zara.

Advantages of joint venture for Zara:

          Higher return than with franchising

          Possibly better relationship with China’s government because of

having local partners

          Share resources such as distribution system and suppliers.

          Reduce personnel expense

Marketing strategies

 

Product

Fast fashion is the core strategy of Zara. It could be

glorified in China with huge labour and sufficient fabric

suppliers and garment manufactories. China has plentiful

labour in competitive value which could cut down Zara’s

production cost. Sufficient suppliers could provide Zara

with bargain and various fabrics while manufactories could

assure of lead-time. Owing to different figure and weather,

Zara need to modify the pattern for Asian markets and

innovate lightweight and washable clothes for Asian weather.

 

PRICE

Zara’s products are priced differently in each country which is based

on the transportation cost, tax and tariff. If Zara does outsourcing

with China, it could cut down their cost and become more competitive.

In addition, as Euromonitor points out, the China government now

allows the foreign capital to hold majority shares in joint venture

and allows apparel retailers to distribute all products they

manufactured in China. This movement fully opens the door for apparel

retailers since the implementation of open door policy in 1978.

 

PLACE

According to Foster (2005), the cosmopolitan city Shanghai has been

the first stop for many fashion brands looking at the market. However,

Beijing is the political epicenter of China as well as the location of

the banking and telecoms industries. In addition, Beijing has 11.4

million people with average disposable annual income per head of 810,

while Shanghai’s 13.3m population has an average income of 670. As a

consequence, Shanghai and Beijing will be the first two stops for

Zara. 

 

PROMOTION

As Kindle (1985) says, the buying behaviour of China’s consumer are

much more likely to be affected by opinion leaders than western

consumers. Thus, it is important to adopt the correct media to express

the brand image. Zara might invite celebrities to endorse their

products instead of advertising twice a year.

 

Conclusion

The internationalisation process of a firm is very complicated and

needs to be considered carefully. As mentioned above, all aspect of

marketing environments will have an impact on the firm’s marketing

institutions, operating conditions, entry strategies and marketing

mix-4P.

Zara, a fast-fashion apparel retailer, has been successful for last

few years. However, as other retailers, they are facing a serious

problem which the markets of developed countries are getting

saturated. Thus, they do have to find out potential markets to

maintain their business.

China, one of the biggest countries in the world, is getting rid of

the sequel of the Great Cultural Revolution. Come along with the open

door policy in 1978, the economics are growing year by year. Along

with the growth of economics, the macro and micro environment have

also changed. After joining the WTO, China is regarded as the biggest

emerging market on the earth.

This paper is a presumption of Zara entry into China market. After

analyzing Zara and China with different theories, it is recommended

that joint venture is the most suitable entry mode for Zara into

China. If Zara can conduct the correct marketing strategy and adopt

competitive advantages in China, it could not only make impressive

sales but also build a truly global Zara kingdom.   

 

Reference

 

Arnold, D. and D’andrea, G. (2002), ZARA, Harvard business school 2002 N9-502-057

 

Bennett, Roger (1998). International Marketing: Strategy, Planning, Market entry & Implementation. London: Kogan Page.

 

Beijing Consultech. (1999), The Outlook for Retailing in China: Strategies for Success in the Key Market, London: Financial Times Business Ltd.

 

Day, P. (1996), Sourcing and distribution of product, in Chin, D. (ED.), Setting Up Shop: Retailing in China, Hong Kong: FT Pitman Publishing.

 

Euromonitor plc (2004), Retailing in China/ Sep 2004, London: Euromonitor Plc.

 

Euromonitor plc (2003), Inditex/ Dec 2003, London: Euromonitor Plc.

 

Foster L. (2005) Beijing bonanza. Drapers Record and Menswear, London: International Thomson Publishing Ltd 23.04.05.

Louse Foster Drapers

 

Garten, J. (1996), The Big Emerging Markets. Columbia Journal of World Business, 31, 6-32.

 

Jones, Richard M. (2002), The apparel industry, Oxford : Blackwell Science.

 

Kindle, T. (1985), Chinese consumer behaviour: historical perspective plus an update oncommunication hypotheses, Historical Perspectives of Consumer Behaviour, Sinapore: National University of Singapore and Association for Consumer Behaviour.

 

Kwan, C.Y., Yeung, K.W., Au. K.F.(2003), A Statistical Investigation of the Change Apparel Retailing Environment in China. Journal of Fashion Marketing and Management, Vol. 7 No. 1, 2003.

                   

McWilliam, G. and Chernatony, L.D., (1989), Branding terminology—The Real Debate, Marketing Intelligence and Planning 7 (7/8).

Porter, Michael E. (2004) Competitive Advantage :Ccreating and Sustaining Superior Performance, London ; New York : Free, 2004

 

Quick MBA (2005), Porter’s Diamond of National Advantage, Strategy, [online], last accessed on 5th May. 2005 at: http://www.quickmba.com/strategy/global/diamond/

 

 

As Seen On Screen: Strategic Marketing Plan

Abstract

 

            ASOS is known of the most recognized online clothing store

in the United Kingdom. It offers products that people often see worn

by celebrities. As such, many people are encouraged to try out their

items. In addition, the prices of their products are relatively lower

compared to high street fashion. Because of these along with other

factors, ASOS was able to grow. With the growth of ASOS over the

years, it is important to ensure that it can be sustained. The fact

that online shoppers and traditional shoppers differ in terms of

concerns and behavior, it is critical for ASOS to study the purchasing

behavior of their market segment to determine the kind of strategy

that they need use to ensure success now and in the future. This

research focuses on the various aspects of online retailing in the

hopes of investigating the purchasing behavior of ASOS customers and

formulating recommendation on how to keep the margin profit of the

company on increasing.

 

Chapter 1

 

Background of the Study           

 

 

            For the past 50 years, the retail industry has been under

numerous changes (Braatz, 2002). For example, the 1950’s saw downtowns

as the center of retailing. People would often go downtown to avail of

various products and services. This products and services included

clothing, food, hardware supplies and banking services. A decade

later, a group of retailers started offering their products and

services in large department stores. The idea is to provide

convenience to the shoppers. By creating a place were various

retailers can offer their products and services, shoppers will no

longer have to make several trips to different locations in order to

purchase the things that they need. This means that retailers hoped to

create a one-stop shop for their customers. As a result, big names

such as Wal-Mart and K-Mart made big names in the retail industry. On

the other hand, downtown or small scale and specialized retail outlets

experienced a decline in the 1970s and 1980s (Braatz, 2002).

 

            From the late part of 1980s to the early years of 1990s, a

new kind of retailing came in being. Home TV shopping networks as well

as warehouse clubs became very popular among consumers. If one-stop

department stores aimed to provide convenience to their customers,

Home shopping networks brought the idea of convenience to a completely

new level. Instead of encouraging customers to drive to their stores,

retails brought the stores inside homes and purchasing the desired

products is as easy as calling a toll free number. On the other hand,

warehouse clubs offered customers the opportunity to buy products in

bulk and at discounted prices. Costco and Sam’s Club are some of the

warehouse clubs that earned success (Braatz, 2002).

 

            The changes within the retail industry continued well into

the late part of the 1990s. Along with the success of internet,

retailers were quick to recognize surfing the web as well as the use

of other internet applications was fast becoming incorporated in the

lives of many people around world. For this reason, they have decided

to bring their stores online. The move to utilize the internet was a

good decision in terms of marketing. Cable television took 25 years to

reach approximately 10 million people, while computers took seven

years to do the same. However, the internet was able to manage that

feat in just six months. This means that retail store will have more

chances of exposure if they have their own website.

 

            Since the utilization of the internet for retailing

purposes, many companies have been able to experience the benefits of

bringing their businesses online. With this, a need was created to

formulate strategies that focus on maximizing the potentials of

internet. Nowadays, ecommerce, ebanking and other forms of ebusinesses

are becoming a popular choice among the consumers and as such, it is

also becoming a popular form of business for companies. Increase in

sales are usually expected by companies when they launch an online

store of host websites that offers their products and services.

 

            In the retailing industry, etailing is also fast becoming

the choice of companies. One of the companies that concentrate in

advancing their etailing endeavor is As Seen On Screen 0r ASOS. They

offer clothing and other fashion related items that are similar to

designer fashion worn by celebrities but a t a lower price. They have

a website where they post the products that they currently have. In

addition, they show actual photos of celebrities wearing a similar

item of clothing that are being sold on their site.

 

            Despite the degree of success that ASOS was able to

achieve over the years of their operation, there are still problems

that they need to resolve in order to ensure the survival of their

business. This is the rationale behind this paper. This paper will be

presenting the conditions that ASOS are operating in as well as the

various aspects that they need to focus on in order to maintain 

steady or increasing follow of profit. These will be done in order to

be able to formulate recommendations that will help the specified

company in addressing the issues that surround their business.

However, the findings of this paper as well as the recommendations

that will be formulated have the possibility of being useful to other

ebusinesses.

 

 

Statement of the Problem

 

 

            The problem of ASOS is generally related to the problem

faced by most online retailers: the online consumer buying behavior.

Not only does buying apparel online represent a new form of consumer

behavior in the ‘computer-mediated shopping environment’ (Hoffmann and

Novak, 1996), apparel online retailers also face intense competition.

Attracting consumers with the limited resources available on the

internet is a big challenge to online retailers like ASOS. Knowing the

online consumer behaviors will let the retailers and managers of these

companies formulate and develop effective strategies that will help

increase the popularity and sales of clothing online.  

 

Moreover, ecommerce is an expensive business but is also proven

profitable once become effective. According to a survey, clothing

belonged to the top six categories of holiday gifts in the USA during

the 2000 Christmas season (eMarketer,2000)  and about 8.4% of the

total weekly online purchases in 2000 is the apparel category (Nelson,

2000). These results suggest that selling clothing online is an

effective business especially if a company has marketing strategies

that will help in the success of the online business.

 

According to a study of users who have bought products online,

there are five main reasons why people shop through the Internet.

These are convenience and ease of use; greater selection; better

prices; easier comparison-shopping; and no sales pressure (Hale,

1997).  On the other hand, there are also reasons why people are not

attracted to making purchases online especially when it comes to

clothing. The top four most frequently identified reasons why

consumers are not purchasing online are ability to judge quality,

security, privacy, and easier to purchase locally (GVU 1998 on Novak

1999).

 

Based on these reasons of shopping online and ‘not shopping

online’, an online retailer can now focus on what to improve on their

services and what to guarantee Internet users to attract them and to

be prospective customers

 

Significance of the Research

 

 

            The findings of this research will benefit the specified

company, ASOS, primarily. The benefits will come in the form of the

recommendations that will be stated in the latter part of the paper.

In addition, they will also find the research body useful since it

will be focusing on how to interact with consumers specifically when

the business uses the internet to transact with their customers. As

such, the body of the research will help ASOS in formulating their own

strategies and marketing plan. In this turn, this will allow them to

increase their profitability by meeting the expectations of their

customers.

 

            In addition, the research will also be benefiting the

customers of ASOS. This is the case since the strategies that will be

recommended will be in relation to improving the services and products

that ASOS provides in their online stores. Aside form this, the

strategies will also be brushing on the subject of how to improve the

website of the company to ensure that the needs of the customers when

shopping online will be met. As such, the improvement of the way ASOS

conducts business online implies that their customers will be treated

to a more convenient online shopping experience.

 

            Looking at the bigger picture, the retail industry,

especially those who are selling clothes and other fashion related

items, will also find the findings of the research useful. This is

more appropriate with retailers who are already online or are planning

to create their own online stores. This is the case since the

strategies that will be mentioned in this paper will be focusing on

the use of the internet as a retailing tool for success.

 

Objectives

 

           

            Any research that has been completed had a set of

objectives that guided them in the process. These objectives allowed

the researchers to determine the kinds of information that will be

useful in arriving at the recommendations for ASOS. In addition, the

objectives of the research paves the way for the management of time

and resources. This is the case since researchers will not be wasting

time on gathering information that will not contribute to the

completion of the research.

 

            In the case of this research, the main objective is to

investigate the behavior of the consumers who shop online. This is

very important since it will allow a company to make projections as

well as conduct scenario planning based on previous consumer behavior.

This means that trends can be determined and analyzed in order to make

forecasts. In turn, these forecasts will serve as the launching point

for the formulation of strategies that aims to maintain or improve the

performance of the company online.

 

            In order to achieve the main objectives of the study,

specific objectives must be present. This will serve as a road map

leading to the destination. The specific objectives of this research

are as follow:

 

-          to investigate the behavior of consumers who buy clothes

online

-          to determine purchasing trends of clothes and other fashion

related items online

-          to determine the factors that affect the purchasing

decisions online shoppers

-          to evaluate the current effectiveness of ASOS’ website

influencing the consumers’ decision to purchase

 

  

Chapter 2

 

History of ASOS

 

 

            ASOS is the brainchild of Nick Robertson and the company’s

co-founder Quentin Griffiths. It was founded on June of 2000. Coming

from a company that specialized in product placement, they worked on

placing products that were seen on television and films. After a

while, they concluded that the market was ready for a kind of store

where people will be able to purchase items that are similar to those

that were worn by celebrities (“ASOS: Unique enough to outlast

competition?”, 2005). The basic premise of ASOS is to offer trendy

clothes similar to the designer clothes of celebrities at affordable

prices.

 

            The company was originally named As Seen On Screen.

However, it was formally changed to ASOS in 2003. A year before they

changed their name, the company aimed for the London Stock Exchange.

To add to their product offering, ASOS began to sell shoes,

accessories, beauty products as well as jewelry in 2004. In the same

year they were named as the second online clothing store by Hitwise

magazine after Next (“ASOS: Unique enough to outlast competition?”,

2005).

 

            Steadily, the sales of ASOS grew. There biggest sale was

recorded from November to December of 2005. This resulted to an

increase in the operating profit of the company. A seventy-one point

seven percent increased was noted, which resulted to ₤1.1M operating

profit in 2004-2005. In the table below, it is noticeable that the

growth of ASOS came only in the years 2004-2005 when there group

operating margin was recorded at eight point two and seven point nine

respectively (“ASOS: Unique enough to outlast competition?”, 2005).

           

However, it was the company’s belief that the sales could have

been higher if only some problems were quickly resolved. One of those

problems was the warehousing problems. The number of orders that

flooded ASOS during the holiday season of 2004 required them to ship

around 2,000 to 3,000 orders per day (“ASOS: Unique enough to outlast

competition?”, 2005). However, their warehouse was too small to

accommodate the number of orders they got for the month of December.

This brought about problems in stocking, organizing and processing

items that came in large quantities in so little time.

 

            In addition, any of the items that ASOS were not offered

during that season. After the rush of Christmas shopping subsided,

many items were not sold and this resulted to a loss in full price

sales opportunity. Since the items left in the warehouse ware already

out of season, ASOS did not have any other choice but to offer them at

discounted price early in 2005.

 

            This loss is noticeable in the table presented above. In

2004, the group-operating margin of ASOS was at eight point two

percent, while its group-operating margin for the following year was

only at seven point nine.

 

ASOS Objectives

 

             Being both in the fashion and retail industry, ASOS needs

to be able to meet the requirements of both industries in order to

succeed. In relation to the fashion industry, ASOS must ensure that

the items they are offering are in season. Being up to date, when it

comes to the latest styles, is crucial for the case of ASOS. This is

due to the fact that they are capitalizing on the trends that

celebrities start. If ASOS is able to maintain this ability then the

retail industry requirement can also be meet since trendy or in season

clothes are more profitable than those that are not. This has been

proven in the case stated earlier where ASOS had to sell out of season

clothing at a discounted price. With this in mind, it is the objective

of ASOS to offer and deliver the trendiest in season collection to

their customers.

 

            Another objective of ASOS is to provide a pleasant online

shopping experience to their customer. It is important to associate

shopping with being online for ASOS’ case. It is a fact that being

physically involved in shopping brings about a different experience

compared to shopping online. For example,

 

 

ASOS.com

 

 

            The ASOS.com website could be improved through a variety

of ways that would benefit both the company and the consumer.  For

example if video and audio clips were added to some pages, this could

increase the interest level for the browsing customer, which could

result in increased sales figures.  Customer services could be

improved through the addition of a live chat service on the website,

providing the opportunity for customers to interact with retail staff

directly about any questions or concerns they may have about their

shopping experience.  Other issues that would need to be addressed

within the ASOS.com website include increased contact with staff,

faster processing of refunds and returns and an increase in

transparency which could be achieved through more comprehensive

information on the company itself.

 

 

Chapter 3

 

Methodology

 

 The research design used in the study is descriptive research.

Descriptive research intends to present facts concerning the nature

and status of a situation, as it exists at the time of the study

(Creswell, 1994). It is also concerned with relationships and

practices that exist, beliefs and processes that are ongoing, effects

that are being felt, or trends that are developing. In addition, such

approach tries to describe present conditions, events or systems based

on the impressions or reactions of the respondents of the research

(Creswell, 1994).

 

In addition, the descriptive method is widely used in studies

concerning behavioural sciences. This means that this method will be

able to capture the essence of the study, which is to determine the

purchasing behavior of online shoppers particularly those who are ASOS

customers. The use of the descriptive method also suggests that the

research will be focusing on obtaining qualitative data. Qualitative

research is an umbrella that refers to various research traditions and

strategies. This type of research design was chosen since it gives

emphasis to attitudes and beliefs of that explain the way they

interpret and make sense of their world. In the case of this research,

the perception of the consumers regarding shopping online for clothes

and other fashion related items.

Target Population and Sampling Methods

It is important that the researcher be able to define the

target population to be able to determine the sampling method

that needs to be used. This is the case since sampling methods to

be used will be the reflection of the characteristics of the

target population defined. 

Sampling can be classified into probability or non-

probability.  Probability methods describe the target population

as a population where every member has non-zero probability of

being chosen as subjects.  Non-probability methods describe the

target population as a population where members can be selected

to be subjects in some random manner.

 For this particular research, the sampling methods used are

those from the probability methods since the target population

was chosen regardless of gender, race, experience or status. It

is stated the participant were chosen regardless of sex since

members of both sexes were included in the population of the

participants.

The utilization of the probability methods can also prove to

be advantageous since sampling errors can be calculated.  This

means that the researcher will be able to determine the degree

that sample differed from the population. There are three kinds

of sampling under the probability method that can be used –

random, systematic and stratified.  The three samplings can be

used independently or simultaneously (StatPac, 2005). 

The participants were chosen through stratified random sampling.

The stratified sampling was chosen because it is more superior

compared to random when it comes to lessening sampling errors.

 

Stratum refers to the subset of the population that shares, at

the very least one, common characteristics. In this case, the stratum

is being an ASOS customer. Both make and female customers were also

included in the research as participants. 

 

 

Chapter 4

 

Competitor Analysis

 

 

According to Proctor (2000), competition is important since it

affects the success of a business venture. Proctor added that

competition is more than just producing and distributing products and

services that matches the needs of the consumers. Competition is about

the company’s capability of positioning itself in the market so that

they will stand out among the rest in the perception of the consumers.

 

In the case of ASOS, they do not have any direct competitors when

it comes to clothing associated with celebrities. However, it is the

case that do compete with  other clothing retailing stores such as

Topshop and FIgleaves.com.

 

SWOT

 

Strengths

            The strength of ASOS is its utilization of the Internet.

Through the Internet, it has formed a definite market segment that is

composed of mainly Internet users. A firm that limits its attention to

fewer market segments can better serve those segments than those firms

that influence the entire market. Moreover, its core focus, which is

apparel, as worn by celebrities at affordable price gives them a

marketing edge for it attracts customers right away. It also gives

huge discounts and has broad category coverage.

 

Weaknesses

            Online retailing in general is getting bad publicity

nowadays such as poor delivery performance. Another weakness is that

ASOS cannot guarantee specific product or brand presence. Internet

selling is unlikely to be successful, as consumers like to try on

clothes and see the quality of fabric and workmanship.

 

Opportunities

Ecommerce channels now represent 11% of the total UK retail

business, and record numbers of products are being procured vie the

internet (Thomson et al, 2005). People are attracted by low prices and

convenience.  In addition, they have integrated their everyday

activities to technology and the Internet, including shopping. As the

number of working women, who are ASOS core customers, continues to

increase, they will not only need more clothes for work but are also

more likely to be financially independent to purchase clothes.

 

Threats

            Online clothing chains from overseas are successfully

invading UK and at the same time, branded apparel such as Diesel,

Guess and Zara are still popular among the market. Other purely online

fashion etailers such as Yoox.co.uk, Brandalley.co.uk are also their

main threats. Downturn in the economy could also cause buyers to cut

back on overall spending.

 

 

 

Chapter 5

 

 

Product Strategy

 

             The product line of ASOS is defined. The company knows

exactly what they want to up out in their website. As the former name

of the company suggests, the product line of ASOS is composed of

clothing articles as well as other fashion related items that have

been seen on celebrity fashion icons or trendsetters. The company’s

decision to extend their product line to include beauty products can

still be deemed as within the original intentions of the company. This

is the case beauty products are now being considered by many, as a

fashion must. A good skin is needed in order to make a certain look

work.

 

            Since the products of the company focuses on products that

must be appealing to the eye of the customers in order to be bought,

visual merchandising is important in conveying the aesthetics of the

products that they are offering. Customers need to see that the

clothing items that are being offered in the website were indeed “as

seen on screen”. Like the conventional retail clothing outlets, ASOS

does have a window to display their products. The pages of their

website serve as the windows where their customers can see the

products. 

 

            However, unlike conventional retail clothing stores, ASOS

do not have any mannequins to dress-up.  Instead, they relay on photos

to act as their online mannequins. In order to generate an almost

complete picture of a dress being offered on the website, they would

display multiple shots of a model wearing the same dress but with

varying angles. As such, an almost 360-degree view of the dress can be

generated on line. Aside from the pictures of the items being sold on

the site, pictures of celebrities wearing the same styled article of

clothing are being displayed next to the items. This acts as an

assurance that the item was indeed as seen on screen.

 

Positioning Strategy

 

            The target market segment of ASOS is as defined as their

product line. They target people who are eighteen to thirty years of

age and who are internet savvy. Based on the questionnaires prepared

and used for this research, the biggest bulk of ASOS customers are

eighteen to twenty-two years. This age group represents fifty-five

percent of the total ASOS customers. It is followed by people who

belong in the age brackets twenty-four to twenty-nine and thirty to

thirty-five who twenty percent of the ASOS customer population each.

Lastly, people who are thirty-six to forty-two years old complete the

population representation five percent of the total.

 

            The result of the survey concluded that ASOS targeted the

right age group for the products. This is the case since the surveyed

revealed that eighteen to thirty year old customers are more open to

buying the products that ASOS offers. Another reason for the bulk

customers on the said age bracket can be attributed to the fact that

people within this age group are more adept at with using computers as

well as navigating the internet. In addition, they are also the ones

who are part of the corporate world where everything is fast-paced

that they do not have the time to go down town and shop for the

clothes and other fashion items.

 

            It will be more convenient for them to browse ASOS’

website, pick the item that they want, pay for it online and wait for

it to be delivered to their specified address.  This could only take a

few minutes depending on the customer, if they know exactly what to

buy or if they are still looking for one.  This also suggests that

working people can easily do their shopping even while in the office

yet not disrupt their tasks. This means that ASOS shopping is a

welcomed distraction during workdays. In fact, peak shopping times

were recorded at lunchtimes and between 7pm to 9pm.

 

            In relation to gender, eighty percent of ASOS shoppers are

women, while only two percent are male as shown on figure 3 below.

This is still according to the survey conducted for this research.

This may be the case since most of the items that are being offered

online are for women. In addition, the marketing activity of ASOS

focuses on disseminating information to more women than men. 500,000

emails are sent to females twice a week compared to 100,000 emails

sent to males only once a week.

 

Offer Strategy

 

            The success of ASOS is being owed to their ability to

offer trendy clothes at significantly lower prices. However, there are

still other factors that needs to be considered when discussing the

success of ASOS as an online retail clothing store. Aside from the

price of the products, the seasonability of the products being offered

is also crucial. It is a fact that the fashion industry is always on

its toes when it comes to innovation. Various collections come out on

a regular basis depending on the season. There are winter and summer

collections as well as spring and fall collections.

 

It is important that will be able to provide the trendiest

clothes for a particular season at a relatively lower price to their

market segment. This is the case since the customer base of ASOS wants

to achieve a look that is the same as that of celebrities who have

sponsorship to top and branded designers.

 

Timing Strategy

 

            Based on the discussion earlier, the sales of ASOS

increased significantly during the holiday season of 2004. This is the

case because orders for products that will serve as gifts were in

demand. In addition, a series of events take place during the

holidays. Family reunions and countless parties are set to happen

during this time of the year. This means that people will always be on

the look out for clothes that they will be able to use during these

events.

 

            However, it is also expected that during the holiday

season discounts abound. This means that consumers are also on the

lookout for bargain deals. In the case of ASOS, they are able to meet

the needs of their customers for ideal apparel at reasonable prices.

As such, during the holiday season ASOS must be able to get the word

going that they will be able to provide quality yet affordable wares

for the people.

  

Chapter 6

 

Convenience

 

            Online shopping is often being linked to convenience.

People expect online shopping to be a breeze. They are attracted by

the fact that they would be able to purchase the things that they

needed without even their homes. This is the kind of convenience that

etailing is currently offering their customers almost all over the

world. However, the convenience that customers are looking for do not

stop there. Other considerations must be taken in order to determine

if the customers are really being provided the kind of convenience

that online shoppers are looking for.

 

            One of the considerations in evaluating convenience in

relation to online shopping is the ease of finding the website of the

company, in this case ASOS. In this aspects ASOS do not have any

problems since the URL of the website is ASOS.com. Once the customer

enters this URL they will automatically be directed to the ASOS online

store and immediately start shopping.

 

            Once on the website, the customers will be greeted with a

page that is easy to navigate. Ton the left side of the screen various

categories are listed where the customers can narrow down their

searches in order to easily find the clothing item that they are

looking for. For comparison purposes photos of the celebrity seen

wearing the original clothing item are also shown when the ASOS

products are clicked.

 

Customer Value and Benefit

 

People will most likely buy from a friend than a salesperson. 

This one thing should be kept in mind by anyone who wishes to venture

into the battlefield of sales. With that in mind the researcher must

keep in mind that way a salesperson presents himself/herself and the

products provides a lasting impact on the customer.  It is often said

that veteran salespeople can sense if the will be able to close the

deal or not within the first 30 seconds of the conversation.

 

When people are purchasing something they are actually taking

into consideration quite a few things like family and friends.  Take

the case of women for example, most women especially ones with kids

will check if specific brand of cereal has Recommended Daily Allowance

of vitamins and nutrients that their kids needs before actually

purchasing a box of cereal. People want to make sure that they are

getting was would be more beneficial to them and their family and of

course they want to make sure that the purchase is worth the money.

 

This is one of the reasons why salespeople have developed a sales

technique involving the features, benefits and advantages of a product

or service. According to Dave Fellman (2005), The FAB formula is the

idea that all products have features that creates advantages, which in

turn provides benefits for the customer. This kind of product

presentation makes the customer realize that the product or service

being offered is of great value to them.

 

 

            In the case of ASOS, the benefits that they are

capitalizing on is the fact that ordinary men and women have the

opportunity to look like celebrities since the products that they

offer are the same as the clothing of celebrities but are more

affordable compared to high street fashion prices. As such, people

have the chance of improving their self-esteem and boosting their

self-confidence just like the celebrities who wear the original

version of the clothes that ASOS is selling.

 

Cost to the Customer

 

            According to the survey conducted for this research, the

average of an ASOS basket is around ₤21 to ₤50. This is usually

composed of three products in one basket. People who are spending ₤21

to ₤50 represent 55 percent of the ASOS consumer population surveyed

for this research. Nevertheless, there those who spend around ₤51 to

₤100 per transaction and they re[resent  thirty percent of the

population surveyed. Lastly, there are those who spend less than ₤20

per transaction.

 

                     However, it is important to note that there are

other expenses that need to be considered when shopping online in

general. Surfing the internet requires the user to consume electricity

and use the services of a telephone, cable or satellite companies,

whichever is preferred or available to the customers’ area. This means

that online shopping expenses includes electricity and internet access

fees. However, these expenses are offset by the fact that no gasoline

or fare charges were added to the total expenses since the customers

did not have to drive to the store and pick-out the dress and not to

mention the hassle-free transaction.  In addition, taxes in the

customers’ area must also be considered.

 

Computing and Category Management

 

            Supply is not a problem for ASOS. This was proven in the

past when they were able to meet the holiday shopping needs of their

customers in 2004. This is the case despite the problems that they

encountered in relation to their small warehouse. Now that ASOS was

able to move a bigger warehouse, they will be able to maximize their

potential and might be able to surpass their highest recorded sales in

the previous years.

 

            However, there is one issue that ASOS needs to resolve

immediately. Otherwise, it might affect their sales in the future.

From the time ASOS was launched until this day, they only offer

clothing items up to size 12. This means ASOS is excluding a segment

of the market that can offer them additional profit. This may also

cause some customers to get turned off since this suggests that ASOS

thinks only people with size 12 bodies have the right to wear

celebrity inspired apparel.

 

Customer Franchise

 ASOS customers have provided a number of reasons why they buy at the

online store. These include the frequency of new products being added

and displayed on the website, the price, the convenience, fast

transaction as well as the ability to track the orders. These answers

by the participants in the research suggests that ASOS was able to get

the trust of their customers and thus people kept on going back to the

website to make purchases.

 

The ability of an online company to get the trust of their

customers is crucial .This is the case it is not easy to get a

customer to input their credit card information. This is due to the

proliferation of spyware that threatens to capture personal

information over the internet.

 

Customer Care and Service

 

According to Ross (1999), Total Quality Management is the

incorporation of all the functions and processes of the organization

(p. 1) to be able to develop the quality of the services and

or/products that they offer. With this, it can be stated that customer

relationship management programs are included in total quality

management. The need to develop an effective total quality management

is important due to various reasons. However, these reasons are still

geared towards providing customers with the great business experience

with the company.  It is also the case that total quality management

views customer satisfaction in relation to customer retention and

increase in the profits.

 

These are being considered by ASOS when they designed their

website. They wanted to give their customers the kind of shopping

experience that would lead them back to the website and make more

purchases.

 

Communication and Customer Relationship

 

 

Some researchers believe that customer satisfaction leads to

customers who will keep coming back to the same store despite the

growing number of available grocery stores.  This results from the

customers’ experience when they were conducting business with that

particular store.  These researchers believes that the presence of

customers who are willing to spend a little more or spend more time on

the website just to be able to shop at their preferred store confirms

that customer experience,  in this case customer satisfaction can help

online stores in increasing their profit.  In fact, a number of

companies believe so much in the power of customer satisfaction

together with other key factors like revenue and profit that they use

it to measure their stores’ over-all performance. 

 

This take on customer satisfaction brings about the concept that

business must include customer satisfaction programs in their budget

allocation. One such example of this practice can be observed in Sears

Roebuck & Co.  Other retail stores even use customer satisfaction

rating as a measure for employee compensation.  Employees and

executives are being rewarded based on the feedback that the store

gets from its customers.  Businesses do this in order to foster a

culture of delivering top-quality customer service that will improve

financial performance.  This statement simply means that businesses

believe that the more satisfied the customers are the more profitable

the store will be.  They give much importance to on the fact that it

is costly to attract customers but even more expensive to lose them

(Kiska, 2004). 

 

According to Bain and Co. (as cited in Bashkaran, 2005), the cost

of gaining new customers is 6-7 times more expensive than retaining

customer and a 5 percent increase in customer retention can also

increase profit by 25-95 percent.  However, the on the average

American companies lose 50 percent of their customers every 5 years. 

This, to a certain degree, proves that there is an indirect relation

between customer satisfaction and increase in sales through increased

customer retention.

 

On the other hand, there are those researchers who believe that

customer satisfaction does not always translate to customer loyalty or

retention. According to two Harvard researchers, Jones and Sasser,

customer satisfaction result in varying levels of loyalty, which

affects the customers’ disposition towards patronage.  This means that

customer satisfaction do not create loyal customers because even

satisfied customers have the tendency to change stores. This change of

store by the customers can be justified by the level of satisfaction

that they will get from another store.  Therefore, the focus of

customer satisfaction must be aimed at proving the highest value

bundle to the customers in order to ensure the highest level of

customer satisfaction (as cited in John, 2003, p. 7).

 

Even though, the two examples provide different view regarding

the relation of customer satisfaction and customer retention, it is

evident that customer satisfaction affects customer retention. In

addition, customer retention results in increased profit since

customer retention lessens the turnover rates (Reichheld and Sasser,

1990).  The only difference that was actually posted by the two

articles involves how customer satisfaction affects customer

retention.  The first example stated that customer satisfaction

automatically results in customer retention while the second views

that customer retention is dependent on the degree of satisfaction

that the customers get.

 

In the case of ASOS, They ensure customer satisfaction by

creating a more user-friendly website so that their customers will not

have a hard time navigating and end up being frustrated by the

difficulty of ordering form their online store.

 

Chapter 7

Recommendations

 

 

            Based on the discussions made above, ASOS can better serve

their customers if they ensure the requirements of the 7C’s as

presented in the previous chapter are met. This means that they must

be able to provide outstanding services to encourage relationship

between them and their customers. In turn, this will led to customers

who are satisfied and willing to do more business with them.

 

            Based on the survey conducted for this research, ASOS

customers the things that concern them when they are buying at ASOS

are style, price and quality respectively. This means that ASOS must

be able to meet these demands of their customers if they want to

ensure continued patronage from them.

 

            In addition, customers also want to see improvements in

the website. They want more interactive type website. This means music

and video clips are believed to be helpful in a customers’ decision to

make a purchase. Furthered customer assistance is also being

requested. Live chat is being considered by many customers. ASOS can

actually provide this kind of service if they outsource it to call

centers in Asia for example. It will be cheaper to outsource it than

to create an in-house call center.

 

 

 

REFERENCE

 

 

 

Bhaskaran, V (2005). Customer Satisfaction Surveys and QuestionnaireTemplates at QuestionPro. Retrieved April 21, 2006,

http://www.questionpro.com/akira/showArticle.do?articleID=customersatisfaction01.

 

Braatz, J. (2002). The internet as a Retail Sales Tool: the Growth ofEsales. Let’s talk Business. October (72).

 

Creswell, J.W. (1994). Research design. Qualitative and quantitative approaches.Thousand Oaks, California: Sage.

 

eMarketer (2000). The e-holiday shopping report. Online <www.

Ematketer.com>

 

Fellman, D. (31, March 2005). FABEA takes FAB to another level. Quick

Printing.

Hale, Mason (1997). E commerce Today and Tomorrow

 

Hofmann, D.L. and Novak, T.P. (1996). Marketing in Hypermedia computer-

mediated environments: conceptual foundations. Journal of  arketing, Vol.

60 No.

John, J 2003, Fundamentals of Customer-Focused Management: Competing throughService, Praeger: Westport, CT.

 

Kiska, J 2004, ‘Customer satisfaction pays off rewards can motivateemployees to deliver top-notch customer service’, HR Magazine,February.

 

Nelson, J. (2000). Internet at a glance. Business 2. September 12,

2000

 

Proctor, T. (2000).Strategic Marketing: An Introduction. London:Routledge.

 

Reichheld, FF & Sasser, WE Jr. 1990, ‘Zero-Defections: Quality Comesto Services,’ Harvard Business Review, September-October, pp. 105-111.

 

Ross, J 1999, Total Quality Management, CRC Press: Boca Raton, FL.

 

StatPac. (2005). Sampling Methods (online).  Retrieved April 21, 2006 from http://www.statpac.com/surveys/sampling.htm.

 

Thomson, Jennifer and Eibisch, James(2005). Responsive Retailing: IP and the

High-Street Retailier. IDC

 

Strategy Market Plan

Background of the Study           

 

 

            For the past 50 years, the retail industry has been under

numerous changes. For example, the 1950’s saw downtowns as the center

of retailing. People would often go downtown to avail of various

products and services. This products and services included clothing,

food, hardware supplies and banking services. A decade later, a group

of retailers started offering their products and services in large

department stores. The idea is to provide convenience to the shoppers.

By creating a place were various retailers can offer their products

and services, shoppers will no longer have to make several trips to

different locations in order to purchase the things that they need.

This means that retailers hoped to create a one-stop shop for their

customers. As a result, big names such as Wal-Mart and K-Mart made big

names in the retail industry. On the other hand, downtown or small

scale and specialized retail outlets experienced a decline in the

1970s and 1980s.

 

            From the late part of 1980s to the early years of 1990s, a

new kind of retailing came in being. Home TV shopping networks as well

as warehouse clubs became very popular among consumers. If one-stop

department stores aimed to provide convenience to their customers,

Home shopping networks brought the idea of convenience to a completely

new level. Instead of encouraging customers to drive to their stores,

retails brought the stores inside homes and purchasing the desired

products is as easy as calling a toll free number. On the other hand,

warehouse clubs offered customers the opportunity to buy products in

bulk and at discounted prices. Costco and Sam’s Club are some of the

warehouse clubs that earned success.

 

            The changes within the retail industry continued well into

the late part of the 1990s. Along with the success of internet,

retailers were quick to recognize surfing the web as well as the use

of other internet applications was fast becoming incorporated in the

lives of many people around world. For this reason, they have decided

to bring their stores online. The move to utilize the internet was a

good decision in terms of marketing. Cable television took 25 years to

reach approximately 10 million people, while computers took seven

years to do the same. However, the internet was able to manage that

feat in just six months. This means that retail store will have more

chances of exposure if they have their own website.

 

            Since the utilization of the internet for retailing

purposes, many companies have been able to experience the benefits of

bringing their businesses online. With this, a need was created to

formulate strategies that focus on maximizing the potentials of

internet. Nowadays, ecommerce, ebanking and other forms of ebusinesses

are becoming a popular choice among the consumers and as such, it is

also becoming a popular form of business for companies. Increase in

sales are usually expected by companies when they launch an online

store of host websites that offers their products and services.

 

            In the retailing industry, etailing is also fast becoming

the choice of companies. One of the companies that concentrate in

advancing their etailing endeavor is As Seen On Screen 0r ASOS. They

offer clothing and other fashion related items that are similar to

designer fashion worn by celebrities but a t a lower price. They have

a website where they post the products that they currently have. In

addition, they show actual photos of celebrities wearing a similar

item of clothing that are being sold on their site.

 

            Despite the degree of success that ASOS was able to

achieve over the years of their operation, there are still problems

that they need to resolve in order to ensure the survival of their

business. This is the rationale behind this paper. This paper will be

presenting the conditions that ASOS are operating in as well as the

various aspects that they need to focus on in order to maintain 

steady or increasing follow of profit. These will be done in order to

be able to formulate recommendations that will help the specified

company in addressing the issues that surround their business.

However, the findings of this paper as well as the recommendations

that will be formulated have the possibility of being useful to other

ebusinesses.

 

 

Statement of the Problem

 

 

            The problem of ASOS is generally related to the problem

faced by most online retailers: the online consumer buying behavior.

Not only does buying apparel online represent a new form of consumer

behavior in the ‘computer-mediated shopping environment’ (Hoffmann and

Novak, 1996), apparel online retailers also face intense competition.

Attracting consumers with the limited resources available on the

internet is a big challenge to online retailers like ASOS. Knowing the

online consumer behaviors will let the retailers and managers of these

companies formulate and develop effective strategies that will help

increase the popularity and sales of clothing online.  

 

Moreover, ecommerce is an expensive business but is also proven

profitable once become effective. According to a survey, clothing

belonged to the top six categories of holiday gifts in the USA during

the 2000 Christmas season (eMarketer,2000)  and about 8.4% of the

total weekly online purchases in 2000 is the apparel category (Nelson,

2000). These results suggest that selling clothing online is an

effective business especially if a company has marketing strategies

that will help in the success of the online business.

 

According to a study of users who have bought products online,

there are five main reasons why people shop through the Internet.

These are convenience and ease of use; greater selection; better

prices; easier comparison-shopping; and no sales pressure (Hale,

1997).  On the other hand, there are also reasons why people are not

attracted to making purchases online especially when it comes to

clothing. The top four most frequently identified reasons why

consumers are not purchasing online are ability to judge quality,

security, privacy, and easier to purchase locally (GVU 1998 on Novak

1999).

 

Based on these reasons of shopping online and ‘not shopping

online’, an online retailer can now focus on what to improve on their

services and what to guarantee Internet users to attract them and to

be prospective customers

 

Significance of the Research

 

 

            The findings of this research will benefit the specified

company, ASOS, primarily. The benefits will come in the form of the

recommendations that will be stated in the latter part of the paper.

In addition, they will also find the research body useful since it

will be focusing on how to interact with consumers specifically when

the business uses the internet to transact with their customers. As

such, the body of the research will help ASOS in formulating their own

strategies and marketing plan. In this turn, this will allow them to

increase their profitability by meeting the expectations of their

customers.

 

            In addition, the research will also be benefiting the

customers of ASOS. This is the case since the strategies that will be

recommended will be in relation to improving the services and products

that ASOS provides in their online stores. Aside form this, the

strategies will also be brushing on the subject of how to improve the

website of the company to ensure that the needs of the customers when

shopping online will be met. As such, the improvement of the way ASOS

conducts business online implies that their customers will be treated

to a more convenient online shopping experience.

 

            Looking at the bigger picture, the retail industry,

especially those who are selling clothes and other fashion related

items, will also find the findings of the research useful. This is

more appropriate with retailers who are already online or are planning

to create their own online stores. This is the case since the

strategies that will be mentioned in this paper will be focusing on

the use of the internet as a retailing tool for success.

 

Objectives

 

           

            Any research that has been completed had a set of

objectives that guided them in the process. These objectives allowed

the researchers to determine the kinds of information that will be

useful in arriving at the recommendations for ASOS. In addition, the

objectives of the research paves the way for the management of time

and resources. This is the case since researchers will not be wasting

time on gathering information that will not contribute to the

completion of the research.

 

            In the case of this research, the main objective is to

investigate the behavior of the consumers who shop online. This is

very important since it will allow a company to make projections as

well as conduct scenario planning based on previous consumer behavior.

This means that trends can be determined and analyzed in order to make

forecasts. In turn, these forecasts will serve as the launching point

for the formulation of strategies that aims to maintain or improve the

performance of the company online.

 

            In order to achieve the main objectives of the study,

specific objectives must be present. This will serve as a road map

leading to the destination. The specific objectives of this research

are as follow:

 

-          to investigate the behavior of consumers who buy clothes

online

-          to determine purchasing trends of clothes and other fashion

related items online

-          to determine the factors that affect the purchasing

decisions online shoppers

-          to evaluate the current effectiveness of ASOS’ website

influencing the consumers’ decision to purchase

Scope

Methodology

Outline of the Study

 

Chapter 2

 

History of ASOS

 

            ASOS is the brainchild of Nick Robertson and the company’s

co-founder Quentin Griffiths. It was founded on June of 2000. Coming

from a company that specialized in product placement, they worked on

placing products that were seen on television and films. After a

while, they concluded that the market was ready for a kind of store

where people will be able to purchase items that are similar to those

that were worn by celebrities. The basic premise of ASOS is to offer

trendy clothes similar to the designer clothes of celebrities at

affordable prices.

 

            The company was originally named As Seen On Screen.

However, it was formally changed to ASOS in 2003. A year before they

changed their name, the company aimed for the London Stock Exchange.

To add to their product offering, ASOS began to sell shoes,

accessories, beauty products as well as jewelry in 2004. In the same

year they were named as the second online clothing store by Hitwise

magazine after Next.

 

            Steadily, the sales of ASOS grew. There biggest sale was

recorded from November to December of 2005. This resulted to an

increase in the operating profit of the company. A seventy-one point

seven percent increased was noted, which resulted to ₤1.1M operating

profit in 2004-2005. In the table below, it is noticeable that the

growth of ASOS came only in the years 2004-2005 when there group

operating margin was recorded at eight point two and seven point nine

respectively.

 

Figure 1: ASOS Financial Performance 2000-2005 (“ASOS: Unique enough

to outlast competition?”, 2005).

 

            However, it was the company’s belief that the sales could

have been higher if only some problems were quickly resolved. One of

those problems was the warehousing problems. The number of orders that

flooded ASOS during the holiday season of 2004 required them to ship

around 2,000 to 3,000 orders per day. However, their warehouse was too

small to accommodate the number of orders they got for the month of

December. This brought about problems in stocking, organizing and

processing items that came in large quantities in so little time.

 

            In addition, any of the items that ASOS were not offered

during that season. After the rush of Christmas shopping subsided,

many items were not sold and this resulted to a loss in full price

sales opportunity. Since the items left in the warehouse ware already

out of season, ASOS did not have any other choice but to offer them at

discounted price early in 2005.

 

            This loss is noticeable in the table presented above. In

2004, the group-operating margin of ASOS was at eight point two

percent, while its group-operating margin for the following year was

only at seven point nine.

 

ASOS Objectives

 

 

            Being both in the fashion and retail industry, ASOS needs

to be able to meet the requirements of both industries in order to

succeed. In relation to the fashion industry, ASOS must ensure that

the items they are offering are in season. Being up to date, when it

comes to the latest styles, is crucial for the case of ASOS. This is

due to the fact that they are capitalizing on the trends that

celebrities start. If ASOS is able to maintain this ability then the

retail industry requirement can also be meet since trendy or in season

clothes are more profitable than those that are not. This has been

proven in the case stated earlier where ASOS had to sell out of season

clothing at a discounted price. With this in mind, it is the objective

of ASOS to offer and deliver the trendiest in season collection to

their customers.

 

            Another objective of ASOS is to provide a pleasant online

shopping experience to their customer. It is important to associate

shopping with being online for ASOS’ case. It is a fact that being

physically involved in shopping brings about a different experience

compared to shopping online. For example,

Internal Structure

ASOS.com

 

            The ASOS.com website could be improved through a variety

of ways that would benefit both the company and the consumer.  For

example if video and audio clips were added to some pages, this could

increase the interest level for the browsing customer, which could

result in increased sales figures.  Customer services could be

improved through the addition of a live chat service on the website,

providing the opportunity for customers to interact with retail staff

directly about any questions or concerns they may have about their

shopping experience.  Other issues that would need to be addressed

within the ASOS.com website include increased contact with staff,

faster processing of refunds and returns and an increase in

transparency which could be achieved through more comprehensive

information on the company itself.

 

 

Chapter 3

 

Product/Market Analysis

Distribution Analysis

Competitor Analysis

 

According to Proctor (2000), competition is important since it

affects the success of a business venture. Proctor added that

competition is more than just producing and distributing products and

services that matches the needs of the consumers. Competition is about

the company’s capability of positioning itself in the market so that

they will stand out among the rest in the perception of the consumers.

 

Financial Analysis

SWOT

 

Strengths

            The strength of ASOS is its utilization of the Internet.

Through the Internet, it has formed a definite market segment that is

composed of mainly Internet users. A firm that limits its attention to

fewer market segments can better serve those segments than those firms

that influence the entire market. Moreover, its core focus, which is

apparel, as worn by celebrities at affordable price gives them a

marketing edge for it attracts customers right away. It also gives

huge discounts and has broad category coverage.

 

Weaknesses

            Online retailing in general is getting bad publicity

nowadays such as poor delivery performance. Another weakness is that

ASOS cannot guarantee specific product or brand presence. Internet

selling is unlikely to be successful, as consumers like to try on

clothes and see the quality of fabric and workmanship.

 

Opportunities

Ecommerce channels now represent 11% of the total UK retail

business, and record numbers of products are being procured vie the

internet (Thomson et al, 2005). People are attracted by low prices and

convenience.  In addition, they have integrated their everyday

activities to technology and the Internet, including shopping. As the

number of working women, who are ASOS core customers, continues to

increase, they will not only need more clothes for work but are also

more likely to be financially independent to purchase clothes.

 

Threats

            Online clothing chains from overseas are successfully

invading UK and at the same time, branded apparel such as Diesel,

Guess and Zara are still popular among the market. Other purely online

fashion etailers such as Yoox.co.uk, Brandalley.co.uk are also their

main threats. Downturn in the economy could also cause buyers to cut

back on overall spending.

 

 

 

Chapter 4

 

Product Strategy

Positioning Strategy

Timing Strategy

Pricing Strategy

 

 

Chapter 5

 

7C’s

Convenience

Customer Value and Benefit

 

People will most likely buy from a friend than a salesperson. 

This one thing should be kept in mind by anyone who wishes to venture

into the battlefield of sales. With that in mind the researcher must

keep in mind that way a salesperson presents himself/herself and the

products provides a lasting impact on the customer.  It is often said

that veteran salespeople can sense if the will be able to close the

deal or not within the first 30 seconds of the conversation.

 

When people are purchasing something they are actually taking

into consideration quite a few things like family and friends.  Take

the case of women for example, most women especially ones with kids

will check if specific brand of cereal has Recommended Daily Allowance

of vitamins and nutrients that their kids needs before actually

purchasing a box of cereal. People want to make sure that they are

getting was would be more beneficial to them and their family and of

course they want to make sure that the purchase is worth the money.

 

This is one of the reasons why salespeople have developed a sales

technique involving the features, benefits and advantages of a product

or service. According to Dave Fellman (2005), The FAB formula is the

idea that all products have features that creates advantages, which in

turn provides benefits for the customer. This kind of product

presentation makes the customer realize that the product or service

being offered is of great value to them.

 

 

Cost to the Customer

Computing and Category Management

Customer Franchise

Customer Care and Service

 

According to Ross (1999), Total Quality Management is the

incorporation of all the functions and processes of the organization

(p. 1) to be able to develop the quality of the services and

or/products that they offer. With this, it can be stated that customer

relationship management programs are included in total quality

management. The need to develop an effective total quality management

is important due to various reasons. However, these reasons are still

geared towards providing customers with the great business experience

with the company.  It is also the case that total quality management

views customer satisfaction in relation to customer retention and

increase in the profits.

 

Communication and Customer Relationship

 

Some researchers believe that customer satisfaction leads to

customers who will keep coming back to the same store despite the

growing number of available grocery stores.  This results from the

customers’ experience when they were conducting business with that

particular store.  These researchers believes that the presence of

customers who are willing to spend a little more or drive a little

further just to be able to shop at their preferred store confirms that

customer experience,  in this case customer satisfaction can help

grocery stores in increasing their profit.  In fact, a number of

companies believe so much in the power of customer satisfaction

together with other key factors like revenue and profit that they use

it to measure their stores’ over-all performance. 

 

This take on customer satisfaction brings about the concept that

business must include customer satisfaction programs in their budget

allocation. One such example of this practice can be observed in Sears

Roebuck & Co.  Other retail stores even use customer satisfaction

rating as a measure for employee compensation.  Employees and

executives are being rewarded based on the feedback that the store

gets from its customers.  Businesses do this in order to foster a

culture of delivering top-quality customer service that will improve

financial performance.  This statement simply means that businesses

believe that the more satisfied the customers are the more profitable

the store will be.  They give much importance to on the fact that it

is costly to attract customers but even more expensive to lose them

(Kiska, 2004). 

 

According to Bain and Co. (as cited in Bashkaran, 2005), the cost

of gaining new customers is 6-7 times more expensive than retaining

customer and a 5 percent increase in customer retention can also

increase profit by 25-95 percent.  But the on the average American

companies lose 50 percent of their customers every 5 years.  This, to

a certain degree, proves that there is an indirect relation between

customer satisfaction and increase in sales through increased customer

retention.

 

On the other hand, there are those researchers who believe that

customer satisfaction does not always translate to customer loyalty or

retention. According to two Harvard researchers, Jones and Sasser,

customer satisfaction result in varying levels of loyalty, which

affects the customers’ disposition towards patronage.  This means that

customer satisfaction do not create loyal customers because even

satisfied customers have the tendency to change stores. This change of

store by the customers can be justified by the level of satisfaction

that they will get from another store.  Therefore, the focus of

customer satisfaction must be aimed at proving the highest value

bundle to the customers in order to ensure the highest level of

customer satisfaction (as cited in John, 2003, p. 7).

 

Even though, the two examples provide different view regarding

the relation of customer satisfaction and customer retention, it is

evident that customer satisfaction affects customer retention. And

customer retention results in increased profit since customer

retention lessens the turnover rates (Reichheld and Sasser, 1990). 

The only difference that was actually posted by the two articles

involves how customer satisfaction affects customer retention.  The

first example stated that customer satisfaction automatically results

in customer retention while the second views that customer retention

is dependent on the degree of satisfaction that the customers get.