Zara has devoted significant time, money and resources to develop a synchronized strategy between online and offline commerce, Kohan explains. By understanding the target customers and providing a new way for fashion, Zara has successfully positioned itself as a stylish, affordable, and quick-changing fashion brand for the younger generation. Inditex (Zara) was once the worlds largest clothing manufacturer. Question: One of the most effective strategy often implemented by Zara is the so-called postponement. In order to compete in the world of rising globalization and shortening of product life cycle nowadays, firms have to deal with the demand for increasing product variety to meet the diverse needs of customers. Zara, the Spanish Inditex Group subsidiary, started its international expansion in 1988 in Holland where the first overseas store was opened. While multiple product offerings can be useful in determining trends and aligning designs with demands, sometimes products can cannibalize each other. In Chart 4, you see total revenue in billions of dollars between 2003 and 2007 for 4 major clothing retailers. You may opt-out by. A push strategy aims to keep products in stock even before the customers order them. The initial motivation of implementing postponement strategy is to avoid, before obtaining accurate and personalized customer While Zara is an excellent purveyor of product, it also capitalizes on the store experience by continuously offering reasons for customers to visit the stores and catch the hottest trends at affordable prices, Kohan explains, noting that Zara has cultivated a loyal customer who visits aboutsix times per year, as compared to other retailers in the contemporary market wheretwo to three visits per year are the norm. Zara's fast fashion business model exploits consumer and cultural changes, with dramatically improved financial results. Zara Postponement Strategy The case of Zara - The Postponement strategy I) Introduction In order to compete in the world of rising globalization and shortening of product life cycle nowadays firms have to deal with the demand for increasing product variety to meet the diverse needs of customers. And as we explored early, there may be some vertically integrated evidence to back that assertion up. HubPages is a registered trademark of The Arena Platform, Inc. Other product and company names shown may be trademarks of their respective owners. Bucklin (1965) as cited in Yang & Burns, (2003) extended the postponement concept to the speculation-postponement strategy and applied it to the distribution channel, involving the delay of the forward movement of inventories. Fast fashion links upstream inventory commitments with a brands downstream profitability. The following section summarizes the key postponement types that Zara utilizes in their value chain. By properly designing the product structure and the manufacturing and supply chain process, Zara can delay the point in which the final products assume their specific characteristics, thus raising the flexibility to handle the changing demand for the multiple products. Zara's fast-fashion formula provides frictionless shopping experience in a highly curated environment that offers limited supply and new styles that rotate continuously. These markdowns and stockouts are very costly for fashion companies. At Shein you can get a dress for less than $5.00 and a winter jacket for less than $30.00. Zaras founder, Amancio Ortega Gaona, is known for his reclusive personality and aversion to media outlets. Further, Zara focuses on its own people with corporate initiatives on diversity, respect, equal opportunity, work-life balance and professional development. Zara is a clothing retail brand owned by Inditex, a Spanish textile manufacturer that was established in 1963. Finally, time postponement refers to the concept that products are not shipped to the retail warehouses but are held at a central warehouse and are shipped to customers directly. It has a clever marketing strategy that can differentiate itself and find higher visibility as well as loyalty. Yeah Inc. is a Canadian wholesaler of brightly colored T-Shirts. The risk attached to the inventory at this stage is lower since their raw form allows them for wider usage variations (Garcia-Dastugue and Lambert, 2007). Product used to be king, but not anymore. To lend some scope to the number of product introductions at Zara, H&M and Gap introduce 2,000-4,000 new products annually compared to approximately 11,000 new designs introduced annually at Zara. Its fast-fashion deliverable is available in the quantity, format and time in which the customer needs the product. Through its business model, Zara aims to contribute to the sustainable development of society and that of the environment with which we interact." Products The key is to combine improved speed and efficiency across the entire product cycles driven by what customers actually want, not just inward-looking cost-savings in part of the supply chain. This is the new distribution model for retailers today: Delivering the brand experience and products when and where the customer demands it. In order to achieve that, Zara's designers are required to use the cloth that Zara has in stock. Buyers now want an item's value to be beyond price, with more time-saving and convenience. In an industry in which customer demand is fickle, Zara has grown rapidly with a strategy to be highly Ferdows, K., M.A. Every human being is innately programmed to satisfy it. While this amounts to something like a psychological ruse, low inventories enable Zara to decrease the number of price reduction events (sales). Zara is thus able to introduce new products more regularly in smaller patches, which in turn results in less markdowns and reduced stock holdings than competitors in general. The former appeals to Zaras unique strategy. Local events. Friedman, Thomas (2006). Being vertically integrated also enables more fluid communications between stages of the Zara product cycle: design, manufacturing, transportation, etc. Innovative Quick Response Programs in Logistics and Supply Chain Management. However, the case experience was not rapid roll out of the pilot, but rather the description of organizational rigidity, which confronted the EVP. Sometimes high demand for various fashion items wanes very quickly. The choice for these US fashion firms is simple: change or die. He takes pride in what he does and the company that he has cultivated. Start your Shopify Free Trial now and get it for free! Those points develop a continuum indicating different extent of application of the postponement strategies in supply chains - Fig.1. The rest of the ingredients, like cheese, meat, and pickles, are specific to each end product. The "fast fashion" philosophy will be put into test in the future, and I'm looking forward to seeing how Zara adjusts its marketing strategy. Zara directly manufactures most of the products it designs and sells, and performs activities such as cutting, dying, labeling, and packaging in-house to gain economies of scale. and Cooper, M.C. Through this technology and mobile connectivity, it links a customers shopping visit and provides access to inventory not present in the specific location. and Lee, H.L. Zaras advertising is limited to its catalogue and its logo on retail store bags used to carry out purchased items. Zara is one of the most successful fast-fashion chains in the world, which is famous for its ability to keep itself up to date with fashion trends and the incredibly short time to introduce new products. An excellent research based hub. According to Zaras official website, sales by geographical region show Europe with 66%, Asia with 20%, and America with 14% of sales. In other words, introducing a new product may limit the success of another product that would have otherwise done well. Zara really is heads and shoulders above many of its competitors and approaches retail fashion in a unique way. Therefore, some innovative companies have integrated postponement strategies with their supply chain operations to gain control of product variety proliferation. His research shows what he calls the Zara Gap, namely, Zaras ability to significantly outperform category averages for department stores, wholesale brands, specialty retailers and athletic brands: The fashion industry obviously faces extraordinary challenges. By making the brand experience meaningful and the exchange valuable, Zara taps the potential of its customers to evangelize the brand. The pricing strategy that Zara applied helped its products meet the needs of a very large consumer segment. The internet has been rife with speculation after a 21-year-old Polish woman named Julia Wendall claimed to be Madeleine McCann, who went missing aged three in Portugal back in 2007. Vertical integration seems most fundamental to Zaras success because it enables many of Zaras periphery stratagems. Every store manager can talk directly to its counterparts in Spain regarding the situation. First, it enables Zara to adapt to consumer demands quickly, aligning itself with demand in a meaningful way. Zara has a deep understanding of these values and delivers affordable high fashion items in just two weeks. Zara uses data to understand customers' insights and current trends. Zara Postponement Strategy Zara fashion swot Zara Case Operation Management Zara Marketing Plan An insight into Zara as a Born Glob Zara Amazing Logistics Zara Swot Analysis of Zara's As completely as possible, sketch the supply chain for Zara from raw materials to consumer purchase The confluence of better capital equipment and more adept employees results in higher quality garments. A fascinating story that can show this is how Zara creates its products to leverage the buyers' input. With this new AR application and in so many other ways, Zara excels by pulling customers into the brand, unlike its closest competitor H&M, which remains fixed on pushing its brand and product out to the customer. It is a big win for both the customer and the company, she says. Everything is precise, professional, and elegant. Since each order of sandwich would be different thus, it is essential that each order would be made individually at the time of purchase and not taken from a batch of pre-made products. In Chart 5, you see profits during the same time frame for Zara and Gap, its biggest competitor. This creates a unique brand image and grows the brand's market share faster, especially among millennials. Moreover, Zara is able to offer a wide variety of products to their customers. In addition to a super-effective supply chain, Zara also involves customers in the design process and provides a unique competitive advantage. Zara has two main distribution centres in Spain that distribute all its EU distribution and some of its global distribution, and a few smaller satellite distribution centres elsewhere. If products are discounted to remove excess inventory, customers may look for discounts in the future, delaying purchases. The founder Amancio Ortega is currently the sixth richest man in the world. So far, Thorbeck is suggesting, the US fashion industry still shows signs of opting to die. While no single business operation accounts for Inditexs success, perhaps most integral to the rising demand fueling Inditexs massive expansion lies in its unorthodox vertical integration and supply chain management. This strategy works well for restaurants like Subway and small lunch counter establishments. (click on screenshot for larger image) The company was founded in Spain in 1974 by Amancio Ortega and his wife Rosala Mera. More specifically, Zara could be counteracting natural human psychology that identifies more expense with greater quality and prestige. If other retailers were to try Zaras approach without 1) vertically integrating and bringing manufacturing closer to markets and 2) reducing inventories, they would likely experience profitability loss as manufacturing and transport costs add up and excess inventories reduce margins. Although, Zara overcome its competitors today's in terms of profit margins, without any stock out rates keeping the industry . Here are five marketing tactics that Zara has implemented to achieve that goal. Available at: http://repository.lib.ncsu.edu/ir/bitstream/1840.16/6468/1/etd.pdf Cheng, T.C. These elements might be collectively known as Zaras overall business strategy. Therefore, by keeping manufacturing at home, Zara circumnavigates this cost. Lewis, J.A.D. Still, the common strategic motivation is to gain better information about customer demand by waiting to customize a product for a particular market or customer. There are different terminologies used to define different postponement types, which are often defined on the basis of activities. Salesforce CEO Slams The Worlds Dumbest Idea, The Surprising Reasons Why U.S. Lost Its Competitiveness, Why The Worlds Dumbest Idea Is Finally Dying, Follow Steve Denning on Twitter @stevedenning. It is the first-hand ear to the ground on buyers and market trends, as well as a tool to plan the next steps. Fast fashion is a business model tailor-made for the multi-channel I want it now Internet-driven buyer of today. : 12 : Now if the fall of them be the riches of the world, and the diminishing of them the riches of the Gentiles; how much more their fulness? Their products are cheaper than luxury competitors, but they want customers to feel like they are getting a product every bit as prestigious and luxury-class. Read on to find out more about Zara's secrets and try applying them to your own brand. The decoupling point is pushed upstream of the supply chain to accommodate wider variety to satisfy customer demand (Figure 4). "Rapid-fire fulfillment".Harvard Business Review, 82(11). Applying the matrix into Zara, the company uses the full postponement strategy, where the manufacturing and logistics operations are initiated after the knowledge on customer demand. Its not us saying you must have this. Question: Zara: Apparel Manufacturing Zara is a chain of fashion stores owned by Inditex, Spain's largest apparel manufacturer and retailer. Lastly, as much as Zara is grandiose in its real-estate investments it is equally selective. 2004. This is known as the postponement approach. I was always wondering about the secrets of Zara's success in India - right from the day one. To install StudyMoose App tap So this statement might wax unrealistic as sentiments usually indicate customers are happy. Now, there is hardly a developed country that doesn't have a Zara store. Online selling has been carefully planned and limited to specific countries as well. Greenpeace.org, 20 November 2012, Zara: Taking the Lead in Fast-Fashion, BusinessWeek, 4 April 2006, Zara, a Spanish success story CNN June 15, 2001. But this doesn't mean it has no focus on marketing. Opinions expressed by Forbes Contributors are their own. While Zara is fast at responding to demand by ramping up manufacturing, it cannot match high demand in a short period of time. Kids, women, men, elders, all age groups, and cultures can try out Zara's items just to love them. Zara masters the concept of exchange as it is not the cheapest in the fast-fashion arena, but it consistently delivers branded value of trend-right product at appealing prices. Yet as in other sectors, the economics is forcing the change. Zara is able to maintain a good pricing strategy by optimizing development and distribution costs. This is the source of the brand's quick growth and reputation. The length of the delay is specific to a product. Initially launched in 120 stores worldwide, such technology is irresistible digital-honey to draw millennials into the store and shop. In 2019, the Zara brand's value was approximately calculated at 16.5 billion euros. This responsiveness and the postponement of decisions until after trends are known allow Zara to reduce inventories and forecast error. In studying these two oft-compared brands, the essential differences revolve around their overall approach to marketing. Zara's stores have clothing for men, women, and kids as well. Spain-basedZara, the worlds largest clothing retailer and owned by Inditex, is introducing an augmented reality experience in its stores. Give us your email address and well send this sample there. Start Your Online Business with Shopify 12 Day Free Trial + Pay Only 1$ For Your First Month. Once a customer specifies the platform, the rest of the sandwich is made-to-order. The point at which the customers places an order or gives information regarding demand pattern, is termed as the Decoupling Point in the supply chain (Chaudhry, 2010). I am sure other retailers too would have taken lessons from Zara's strategy. Get your custom essay on, Get to Know The Price Estimate For Your Paper, "You must agree to out terms of services and privacy policy". (2016, Mar 06). 500,000 items were stocked and sold out in just three days. The synergy between Zaras individual stratagems makes it difficult for competitors to copycat. Keywords Supply Chain Supply Chain Management Product Variety Guardian 3 June 2012 http://www.guardian.co.uk/business/2012/jun/03/zara-bucks-spanish-economic-gloom. Zara nails that.. Control over design and manufacturing by keeping manufacturing processes close to management centers also makes garments both higher quality and easier to manipulate. This proprietary software, on top of a specially trained professional workforce to do the same, capitalizes off of Zaras rapid product replacement cycles by cataloguing in real-time which products are being purchased, in what quantity, and where. It manages the design, production, shipment, display, promotion, sales, and feedback itself, relying only diminutively on outsourcing. Shipments from the distribution centres to stores are made twice a week, based on customer demand in each individual store. Zara likes to distinguish itself, too, by establishing stores in unique settings such as the San Antonio el Real, an 18th-century convent in Salamanaca; a historic cinema in Elche, Spain; and 666 Fifth Avenue in New York. In order to achieve that, Zaras designers are required to use the fabric that Zara has in stock. Something many other clothing retailers simply cannot replicate because they rely so heavily on cheap manufacturing labor from Asia. Gap continues to sell many more garments than Zara. So its prices have to be catered to the price-sensitive buyers as well. (2010). Copernican revolution in management mindsets. . The logistics department considers supplying dissimilar stores with varied stocks depending on the needs and the market segment of that particular locality (Sull & Turconi, 2008). . Zara, says Hausman, achieves four times more profitability than most apparel retailers, by combining higher turn and margins, and lower inventory risk in a highly uncertain business. J.M. . Postponement is first implemented in manufacturing processes to reduce inventory cost and improve service level within the company while the product variety increases. New York: Farrar, Straus, and Giroux. Chaudhry, H.R. The next problem tries to illustrate the value of postponement. The screenshot below shows a closeup satellite view of this facility. This strategy is visible through the attention to each detail of its showrooms. : 13 For I speak to you Gentiles, inasmuch as I . The location strategy of Zara is to put stores in high-street retail areas of major metropolitan cities. The result is the customer and the company work cooperatively together so that the Zara customer becomes the Chief Customer Officer providing feedback on all aspects of the business, Kohan concludes. Zara actually listens and reacts to customer feedback as its most valuable brand asset to improve its products and services, she says. Here is a quick recap of what you can learn from Zara's marketing strategy: The Zara brand was created with a keen focus on customer experience - which leads to its ability to provide trendy fashion quickly at affordable prices. In effect, they are still living in the world of traditional management, with the vertical mindset of shareholder value and command-and-control. http://www.guardian.co.uk/business/2012/jun/03/zara-bucks-spanish-economic-gloom. Perhaps impulsive buys are something common at Zara stores, and perhaps Zara wishes to create such an environment, but customers keep coming back for more Zara products. Zara is not the cheapest in the fast-fashion industry, but it delivers trend-right products at appealing prices consistently, which makes it have the best-branded value. Besides the supply chain efficiencies and marketing philosophies, one of the key factors for Zara's success is its postponement strategy. Moreover, vertical integration and locating manufacturing close to markets enable Zara to manipulate designs and churn out new ones very quickly, introducing Zaras second most important strategy. According to recent data, the answer is yes. the postponement of the legal age from 60 to 62 led between 2010 and 2022 to an increase of 100,000 in the number of beneficiaries over 60 years old. It seems only newcomers have a real shot at replicating Zaras strategy. Journal of Business Logistics, 28 (1), 57-81. Zara capitalizes on very inexpensive but highly effective social media advertising strategies. This relates closely to Zaras lightning-fast product replacement, unparalleled in the industry. These loyalitsts become brand evangelists who share excitement about the brand with their networks. Understanding that they want trendy but affordable fashion items, Zara sharply provides the latest styles at low prices. This is a fundamentally different alignment than brands using the 4Ps approach to marketing operate. While Zara doesn't spend much on advertising and promoting, it invests heavily in the location and appearance of 2,250 stores around the world. The items have their own fashion seasons that come and go even faster than the rest of the fashion world. You can see from Chart 3 above that the quantity of products Zara discounts pales in comparison to other retailers. The Decoupling Point differentiates between two segments of the chain, one of which operates without clarity on customer demand whereas the other operates after information regarding final demand has been received (Figure 3). The result is the brand's sales keep getting higher, and the market share keeps increasing. In 2012, Inditex reported sales of about 16 billion euros from more than 6,000 retail outlets in about 86 countries. But does this multilevel psychological game really increase profitability? In this paper, we introduce concepts related to postponement, discuss successful industrial applications and identify key . This concept can be applied to more than just-food. If more of one kind of sandwich is ordered or less of another, the total number of buns is not affected by this deviation in demand; however, the amount of cheese would be. Examples of products that can benefit from postponement include consumer appliances, automobiles, apparel, and even airplanes. In the new economy, the customer's experience matters more than the product itself in the mind of the shopper. Through this approach, Zara can earn many loyal buyers that are less price-sensitive and return a higher profit margin. Rapid Fire Fulfillment. 7. The superior performance of agile management in fast fashion is now well-documented. Hansen, Suzy. The analysis also demonstrated that the information linkage across value chain is one of the most important factors towards the application of postponement strategy. Zara is revolutionizing its products even more" %}. While it cannot be said whether or not Zara is successful in creating a greater general welfare in the societies it touches, it can be said definitively that it influences a great number of societies. For example, low inventories fail to accommodate the high demand for a product. for only $11.00 $9.35/page. But what is fueling the demand for Inditex products? Zara is an "instant fashion" brand, which means it identifies the latest fashion trends and brings the design to its stores quickly at reasonable prices. On the other hand, manufacturing postponement refers to the situation where certain stages of the manufacturing process for a product are delayed until receiving a customer order. While the number of garments manufactured by Zara (in blue) has increased steadily since 2008, industrial waste (in green) has decreased or maintained very low levels. Thorbeck lists the excuses that US retail executives offer: Thats not our customer. 07 May 2014. However, brand communication is crucial in Zara's marketing strategies. Exchanging dollars for product is no longer meeting the needs of todays shopper as they strive for deeper connections with the brand, Kohan states. At the start of each selling season, the designing team create a library of models that serve as platforms for the models that will be eventually launched (Swaminathan and Le, 2003). The more agile, horizontal mindset with a total focus on delighting customers through continuous innovation has yet to take a hold in an industry that is crying out for it. Products with highly uncertain demand are sourced from Europe whereas products that are more predictable are sourced from its Asian locations. 2023 The Arena Media Brands, LLC and respective content providers on this website. Interestingly, Zaras (Inditex's) mission statement here makes no mention of clothing either directly or indirectly. The key is the familiar Agile technique of postponement: transforming a product into its final form at the latest possible moment. Adopting postponement strategy, however, has often led manufacturers to situations of higher risk of holding exclusive material in the customization stage. To achieve such spectacular results, Zara doesn't market itself the way other fashion brands do. Zaras strategy is to get as close to them as possible, (Suzy Hansen 2012). Analysis of Zara's fast-fashion retailing strategy with FIT Shelley E. Kohan, based on the 4Es model of marketing, where Experience replaces Product, Exchange in new Price, Evangelism is now . By adopting this strategy, Zara can avoid the high product obsolescence costs that are often faced by fashion apparel retailers. Zara understands this. Design for Postponement [pdf]. The industry that is mercurial and trend- driven. As the brand ethos is so embedded in the customers mind, the customer becomes the brand manager, Kohan explains. Meghan and Harry branded 'selfish brats' as US host Megyn Kelly savages the . Instead, it introduces three salient components of Zara: the business model, the environment, and society at large. Kids versions are available too. So we can hope for more in the future. Established competitors like Gap and Gucci would have to completely reinvent themselves to successfully mimic Zara. Machuca. With the right insight at the right time and direct access to the production chain, Zara could launch new designs at lightning-fast speed and provided exactly what customers needed. When expanded it provides a list of search options that will switch the search inputs to match the current selection. Zara's pricing strategy focuses on the average shopper that wants the latest fashion items at affordable prices. Richest man in the design process and provides a list of search options will... Replicate because they rely so heavily on cheap manufacturing labor from Asia enables to... 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Catalogue and its logo on retail store bags used to carry out purchased items excuses that US executives. Of agile Management in fast fashion business model, the worlds largest clothing and! Their customers Zara utilizes in their value chain is one of the supply chain Management product proliferation!