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Zara Fashion Case: A Comprehensive Marketing Analysis

06 Mar 2023,12:17 PM

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Company and Products

Zara is the largest fashion sub-brand owned by the Inditex Group global conglomerate. Its creation in 1975 was to enable the Inditex Group to achieve a wider mass market reach across the global fashion industry (Jangid, 2020). The fast fashion business model is the nature of Zara’s business, whereby it increases the speed from fashion design to retail to respond quickly to consumer tastes (Cui, 2022). Zara’s target market is middle-class women between 24 and 35 (Jangid, 2020). The latest research and key metrics show that Zara’s current market position is a global fast fashion market leader (Research and Markets, 2021; Costa, 2017). It has perfected the fast fashion model with more than 11,000 unique items in its retail stores globally compared to its competitors’ 2000-4000 average, 12 inventory turns annually compared to the competitors' 3-4 annual average of inventory turns, and only 10% inventory unsold compared to industry averages of 17 to 20% (Jangid, 2020; Yin, 2022). Zara's success is also clear based on its tripling of stores and profits since its inception.

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The Nature of the Demand for the Products

Zara organizes the products it sells globally into upper and lower garments. The company's website reveals that the upper garments are more expensive than the lower garments (Zara, 2023). Although the fast fashion model makes Zara most renowned for affordable mass-market prices for high-quality, trendy looks, the brand also runs two annual limited-edition premium high-end/luxury designs that are more expensively priced (Cui, 2022; Jangid, 2020; Jackson, 2021). Although expensive, the limited availability of high-end collections stimulates demand by creating a sense of urgency, which makes the more expensive products sell out quickly (Jangid, 2020). Therefore, the two products this discussion compares are Zara women's coats from the high-end 2021 Atelier collection priced between $400 and $600 and a normal mass-market women’s coat priced at $119 (Somani, 2021; Zara, 2023). Figures 1 and 2 below illustrate the two distinct high-end and normal products and their respective demand elasticity.

Figure 1

Normal Zara Coat, Price $119

Figure 2

High-End Zara Atelier Collection Coat, Price between $400 and $600

The normal Zara coat has a perfectly elastic demand regarding price and income. Demand elasticity reflects how sensitive the consumer demand for a product is to changes in price and income (Ariely, 2009). A coefficient of 0 derived from dividing the change in quantity demanded by the change in price shows inelastic demand; 0 is perfectly inelastic, 1 is unit elastic, and greater than 1 is perfectly elastic (Ariely, 2009). In figure 1, the coefficient of 4 reveals perfect elasticity to price and income because lower prices make the product more affordable at low-income levels. The current research supports perfect elasticity by showing that Zara discounts stimulate higher demand for lower-priced products (Jangid, 2020).

Conversely, figure 2’s coefficient is 0.25, which reflects an inelastic demand. Zara customers with higher incomes and who can afford the higher priced high-end coat are less sensitive to price and income changes than in figure 1. The current research supports this finding by demonstrating that more high-end consumers increasingly perceive Zara as a luxury instead of a mass-market brand (Jackson, 2021). The higher purchasing power explains the observed price and income inelasticity for the high-end product.

Figure 3

Cross-Elasticity of the Two Zara Products

Moreover, the coefficients above demonstrate the tendency of some elasticity in both product categories. This suggests that lower prices in either product category can stimulate demand in the second product category because of the availability of additional disposable income. This causes the cross-elasticity demand pattern illustrated in figure 3 above.

The Microeconomic Environment

Zara belongs to the fast fashion market segment, which targets a wide range of consumers but particularly emphasizes middle-class women aged between 24 and 35. The segment comprises the big and established fashion industry players and small businesses that utilize a similar approach of moving fashion products quickly from the design phase to the stores (Jangid, 2020). The competitors in this segment focus on reaching a broad mass market through affordable prices and responding rapidly to changing fashion trends (Cui, 2022). Zara’s main competitors in the segment, H&M, Uniqlo, Gap, and ASOS, target similar consumer markets but implement different strategies, whereby Zara excels against the rivals through its faster time-to-market speeds and strategic location decisions for its retailing outlets (Jangid, 2020). In this regard, the key metrics from the latest market research demonstrate that although there are many small players in the global fast fashion segment, which makes the industry moderately fragmented, "the top ten competitors in the market made up 29.13%" of the total market share in 2020 (Research and Markets, 2021). As a result, Zara enjoys the largest market share, followed by H&M and Uniqlo.

Therefore, based on the market research synthesized above, the appropriate market structure diagram for Zara is the oligopoly market structure diagram in figure 4 below (Grana et al., 2019). This is because the key market characteristic is that a few leading international businesses dominate the global market share (Kantarelis, 2019). However, many smaller businesses' availability prevents collusion in the market and makes their structure and practices more efficient, open, and fair (Cui, 2022). Instead of collusion, rivals compete on economies of scale, as illustrated in figure 3. Zara, H&M, and Uniqlo hold the greatest market power because they have larger operations with at least 2,000 retail outlets worldwide (Cui, 2022). They also emphasize vertical integration to lower costs and achieve greater economies of scale hence stronger competitive positions, as illustrated in figure 3. Finally, another major advantage of economies of scale is enabling the industry's major powers to reduce major externalities like environmental degradation and climate change.

Fig. 3

Market Structure Diagram

 

 

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References

Ariely, D (2009) Predictably Irrational. London, UK: HarperCollins Publishers Ltd.

Costa, A. M. R. M. (2017) Zara's case study: The strategy of the fast fashion pioneer. Dubai: Manipal University.

Cui, L. (2022, April) ‘Analysis on China’s Fast Fashion Industry under Covid-19 Based on the SCP Model’, In 2022 7th International Conference on Social Sciences and Economic Development (ICSSED 2022) (pp. 1092-1096). Atlantis Press.

Grana, J., Bono, J., and Wolpert, D. (2019) 'Reasoning About 'When' Instead of 'What': Collusive Equilibria with Stochastic Timing in Repeated Oligopoly,' The BE Journal of Theoretical Economics20(1). https://doi.org/10.1515/bejte-2018-0038.

Jackson, C. (2021) 'Zara Launches New Lable Zara Atelier, and The High Fashion Coats Are Everything,' Elle. Available at: https://www.elle.com/uk/fashion/what-to-wear/a38481382/zara-atelier/. (Accessed 6 March 2023).

Jangid, M., 2020. Zara’s Case Study (Doctoral Dissertation, Manipal Academy of Higher Education).

Kantarelis, D. (2019) 'Brand Loyalty in a Bertrand-Type Oligopoly Setting,' American Journal of Industrial and Business Management, 9, p. 2250. https://doi.org/10.4236/ajibm.2019.912149.

Research and Markets (2021) Global Fast Fashion Market Report 2021- Market is Expected to Grow at a CAGR of 5.3% from 2025 and Reach $211,909.7 Million in 2030. Available at: https://www.prnewswire.com/news-releases/global-fast-fashion-market-report-2021---market-is-expected-to-grow-at-a-cagr-of-5-3-from-2025-and-reach-211-909-7-million-in-2030--301414180.html. (Accessed 6 March 2023).

Somani, V. (2021) ‘Zara Atelier: Zara’s New Coat Line is Expensive but Is It Luxury?’, Editorji. Available at: https://www.editorji.com/lifestyle-news/fashion-and-beauty/zara-atelier-zara-s-new-coat-line-is-expensive-but-is-it-luxury-1639653082751. (Accessed 6 March 2023).

Yin, Z. (2022, July) ‘How Fast-Fashion Brands Went Viral—Taking Zara as an Example,' In 2022 2nd International Conference on Enterprise Management and Economic Development (ICEMED 2022) (pp. 538-542). Atlantis Press.

Zara (2023) Oversized Straight Cut Blazer. Available at: https://www.zara.com/us/en/oversized-straight-cut-blazer-p02510510.html?v1=255408657&v2=2184058. (Accessed 6 March 2023).

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