Zara's Performance in Czech Republic: Sales Influencers and Customer Satisfaction, Schemes and Mind Maps of Marketing

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UNIVERSITY OF NEW YORK IN PRAGUE Analysis of Zara in the Czech Republic 2019 Artur Schuertzmann UNIVERSITY OF NEW YORK IN PRAGUE Analysis of Zara in the Czech Republic By Artur Schuertzmann 2019 Mentor: William Pattison Table of  Contents   Introduction ............................................................................................................................ 1   Literarily Review .................................................................................................................... 4   Company’s Background ......................................................................................................... 5   1.   Marketing ........................................................................................................................ 7   1.1.   Segmentation and Targeting ..................................................................................... 8   1.1.1.   Zara’s STP ....................................................................................................... 10   1.2.   Situational Analysis ................................................................................................ 13   1.2.1.   ZARA SWOT .................................................................................................. 16   1.2.2.   ZARA Five Forces .......................................................................................... 19   1.3. The Seven P’s ............................................................................................................ 22   1.3.1 Zara Marketing Mix ............................................................................................ 27   Product .......................................................................................................................... 27   Promotion ..................................................................................................................... 28   Place ............................................................................................................................. 29   People ........................................................................................................................... 30   Process .......................................................................................................................... 30   Physical Environment ................................................................................................... 31   2.   Primary Competitor ....................................................................................................... 32   3.   Methodology .................................................................................................................. 36   3.1.   Survey development ............................................................................................... 38   4.   Research results ............................................................................................................. 41   4.1.   Insider Interview key takeaways ............................................................................ 46   5.   Recommendations ......................................................................................................... 48   6.   Conclusion ..................................................................................................................... 52   Works cited: .......................................................................................................................... 54   Bibliography: ........................................................................................................................ 58   Table of figures ..................................................................................................................... 64   Abstract The following paper provides a detailed analysis of Zara’s presence in the industry of fast fashion retailing, particularly the brands segmentation and targeting techniques, operational processes as well as marketing utilization by the company. Market of interest is Czech Republic and its capital city Prague. The analysis of the brand occurred by conducting primary and secondary research; these gave a clear perspective of the strong as well as weak aspects of the company overall and in the target market. The primary goal was to provide value through a set of recommendations that we derived from the research and which are of value for further improving the position of the company at the industry that it operates in. A few weak sides to the company included; personnel training, the ERP system and full utilization of the available brand recognition and social media resources. The recommendations also consisted of the opportunities that the industry and the market currently provide for fast fashion retailors such as ZARA. These included possible regional expansion in the developing market of Czech Republic and the use of online platforms for increasing sales of the company. The main competitor of the brand was identified as H&M, it is closest in terms of recognition as well as price point of their products. Thus, it represents the highest threat to Zara in terms of possible rivalry within the industry. In order to minimize the effect of brand rivalry on the company’s performance the paper recommended a set of possible techniques including focusing primarily on the new customer that is stepping into the market segment instead of retaining and obtaining old ones. The work obtained a variety of other recommendation due to primary and secondary conducted research and presented in the paper. 3 they go shopping in other stores. My motivation is mainly to step forward in the area of marketing and statistics; following apply the knowledge I have acquired throughout all these years. Covering the entire organizational processes is not a paramount goal of the paper, but instead to focus on processes taken place within stores in Prague. This research supported by insider information, provided by an individual who currently works in one of the Zara stores in Prague. Hence, it has not been an issue to acquire general and even detailed process description. Thus, it was possible to realize the weak points of Zara’s processes. Primary research methods: secondary research on marketing as well as sales development strategies of the ZARA brand within the Czech market and self-conducted research with the help of multiple volunteers (my friends). Customers went through a brief interview after they left the Zara store. Then we observed to see whether they purchased something else in different stores close by. Afterwards, we approached the same customers once more, in the case if they made a purchase in different stores that have similar product segments, rather than buying something in Zara at the first place. Questions that we ask provided in the “Survey development” section. In addition, we sent mystery shoppers (volunteers) into the pre-determined store across Prague during different time on the spread of a single week, to figure out how well the retail process is functioning. Hypothesis is that potential customers, who did not buy anything in Zara, are wither affected by the lack or not up to par marketing as well as poor retail process and general store functioning. The outcome of which is that potential customers buy clothes from other brands of similar product segments. Approached by our volunteers who asked these consumers to provide feedback on why they did not buy garments from Zara, we acquired interesting feedback regarding customer service and other internal determinants of customer satisfaction. In addition, we expected that people, who purchased products in Zara, would buy less from other stores or not buy at all. In our case, it is better to apply descriptive statistics, as inferential statistics needs some assumptions that this research did not fulfill. For instance, inferential statistics need to have random sample input data. Random means that everyone chosen from the population pool had an equal probability, which requires for a very large sample pool. 4 However, it seems impossible since the time during conducted research is not covering same group of people. For example, we may only have people who currently base themselves in a certain area of the city, because the shopping mall location were the store is located is far from other parts of the city. Thus, the use of descriptive statistics seems more sensible.2 Expected outcome: completion of the research provided a possibility to understand the essential reasons why the purchase of a certain item at store happened and vice versa. Customers have a possibility to provide us with hints and pinpoint the key opportunities of Zara that a brand utilizes for improvement. In addition, due to the conducted interviews it was possible to determine the customer profile of Zara’s typical buyer in the chosen areas. Based on the research results, we signified some other important elements of Zara’s marketing. Additionally, the work also incorporates the theory of marketing strategy and the use of it by ZARA in the market of interest. It also serves as framework for the primary research. Hence, work will incorporate firm theoretical basis for the thesis, then presented in the following chapters is the breakdown and analysis of the results. Conclusion derives from the study data obtained over a certain period. Finally, the paper illustrates the operational processes of Zara as well as their weaknesses or strengths according to the research results. My ideas, supported by quoting reputable authors of marketing field and presenting legitimate data produced new insights. Literarily Review The obtained literature through the preparation and execution processes of writing the following paper primarily focused on marketing theories, operation improvement techniques of the company and market examination. All of which was useful in conducting the required analysis of the Zara brand in the Czech Republic. I particularly found interesting ‘Customer loyalty through social networks’ by Gamboa. It directed me to look into the possibilities that Zara has in the social media space and the best way to utilize them. As it currently seems as the most efficient way to promote the brand and of recent 2Helman, K. (2019). Consultation [In person]. University of Economics, Prague. 5 developments even sell the actual products through the social media. A number of other publication and journals by various authors provided interesting insights to operational processes of large international companies and strategies for improvement. Company’s Background Even though Zara in consideration is a well-known cloth retail brand, a thorough company background is of good use, as we will end up having some noteworthy information. The establishment of the company occurred in a small city by the name of La Coruna, in the Galicia region of northwest Spain. Where, co-founders of Inditex established what nowadays many consider one of the biggest and globally recognizable fashion brands. Amancio Ortega and Rosalia Mera had a business strategy of producing low-priced lookalike clothes of popular and expensive brands. It is actually still the major advantage of Zara in today’s concentrated business environment of fashion retail stores. However, with the time passed the overall processes have been reshaped, some useless parts of the older business model have been removed and some new were added. That is what makes Inditex something special in terms of value delivery and its agile supply chain technique. Latter one thoroughly explained in the next chapter. It is important to mention that Zara came into existence ten years after Inditex initial creation. Currently, Inditex is one of the largest fashion retailers with eight famous brands under its direction. Inditex has nearly 170 thousand employees and 7400 stores in roughly 100 markets.3 There are seven other brands under the brands wing, such as Pull&Bear, Massimo Dutti, Oysho, Bershka, Uterque, Stradivarius and Zara Home. All of them are moderately different in terms of customer segment, but it will not be appropriate to say there are unique. They share the same organizational structure and supply chain technique. Overall, financial turnover reached twenty-five, three billion euros in 2017, with Net Profit of 3.4 billion euros.4 Today’s Zara is present in ninety-six markets with more than 2000 stores overall.5 Zara entered the Czech Republic in 2001 by establishing its own stores, so it did not take form neither of franchising nor of joint ventures. Recently, Zara has opened another store in 3Our story - inditex.com. (2019). Retrieved from https://www.inditex.com/about-us/our-story 4(2019). Retrieved from: https://static.inditex.com/annual_report_2017/assets/pdf/memoria_en.pdf 5Zara Success Story. (2019). Retrieved from: https://successstory.com/companies/zara 8 As the above image suggests, the marketing strategy should first determine the customer segment for this reason it includes segmentation and targeting. Afterwards, the company gets to decide on how to differentiate among the competitors and place them into positioning. Finally, a firm will design so called marketing program also well known as marketing mix (4Ps) Therefore, the work discovers Zara’s approach and strategy regarding these business elements. 1.1. Segmentation and Targeting Why do companies segment the market? Retail businesses segment their markets for effective respond/provide solutions to the group of potential customers. Hence, well- developed segmentation may increase sales and profits of the company. Marketing segmentation requires some level of generalization such as aggregation and categorization of people based on their needs and wants. Once done, a company determines the set of actions to reach this group of people and deliver the product. Natural existence of different market segments resulted in evolvement of product differentiation. Businesses view this from broad as well as narrow perspective. In broader point of view, product differentiation needs modified marketing mix strategy to inform buyers about the product’s uniqueness. In narrower sense, a company sells products with certain features in two different markets. Hence, it does not require having two different marketing mixes for a similar product. Market segmentation is necessary, when a firm produces only one product and wants to sell in two or more different market segments. It is easier and cheaper rather than completely rebranding a product for another market segment. In this case, a company uses different communication and distribution channels for separate market segments. Even though, it may increase the costs, but the expense of development of a rebranded product is still higher. In the case of a company producing multiple products and simultaneously operating in multiple market segments, segmentation is of even higher value. For instance, car producers may have developed a variety of vehicle models to sell in numerous markets.7 7Berkovitz, E., Kerin, R., & Hartley, S. (1992). Marketing. Homewood: Irwin. 9 Figure 2-Steps of marketing segmentation, targeting and positioning Furthermore, there are several ways of how to segment consumer-oriented markets. Companies group numerous variables into two general kinds: customer characteristics and buying situation.8 The second step of marketing segmentation is to form products to sell in groups. It may not be a problem if a firm sells only one product, however it becomes an issue if it has a myriad of products to sell. Hence, businesses group these products in a way that customers can relate to them. Afterwards, a firm is to decide on selection of target market. Particular process is similar to a surgery, where an expert has to discern unneeded parts and emphasize necessary ones. However, an overly focused approach or narrow targeting can become riskier for the business. This may result in a company’s produced volume not sold due to insufficient demand from targeted segment. Therefore, a criterion for selection process exists. Below I cover them and succinctly explain their meaning. • Size: means the estimated size of a market in the segment. 8Towle, L. (2019). WHAT IS NEW IN FREQUENCY MARKETING; A RACE TO WOO THE MOST LOYAL CUSTOMERS. Retrieved from https://www.nytimes.com/1989/12/03/business/what-s-new-in- frequency-marketing-a-race-to-woo-the-most-loyal-customers.html 1   • Iden(fy  market  needs   2   • Segment  poten(al  buyers   • Form  product  to  be  sold  in  segment   • Select  target  markets   • Take  marke(ng  ac(ons  to  deliver  the  solu(on   3   • Execute  marke(ng  program   10 • Potential Growth: In the long-run firms, take into account the possibility of market’s growth and expansion. • Competition in a market: the less competition is the more attractive a market becomes for a business. • At what cost: firms ought not to invest in reaching segments, which are too difficult and/or costly to access. Although, there exists certain criteria for market selection process, there is not any correct mantra, rule or formula to summarize a final decision. It is solely the consumer’s decision and they often have their own pros and cons, as well as prejudices or preferences. Aforementioned criteria just give a hint and provide with a basis for general evaluation. However, the final decision is up to the managers who weight the importance of these criteria individually. The last step is to develop and take a set of marketing actions that will help in reaching the targeted markets. Companies achieve this task using marketing strategy represented by the Four P’s model. 1.1.1. Zara’s STP Below is a brief depiction of segmentation, targeting and positioning strategy of Zara. Inexperienced companies often consider it a simple task, but a lack of trustworthy sources that are sufficient enough create difficulties in completing these tasks. The brand company utilizes a mix of geographic, demographic and psychographic segmentation strategies for covering the majority of the possible needs as well as desires of their customers. Retail companies from all types of segmentation most commonly use demographic segmentation, as it provides an important general understanding of the potential customer within the chosen market. Consumer’s needs and wants regarding their clothing style constantly change with their age Zara considers this. The life cycle stage of segmentation comes closely related to age, but the focus of it is predicting the desires of the potential customer in advance. Commonly said, men are from Mars and women are from Venus, thus naturally their preferences differ and Zara realizes this very well. General income of the chosen market sets the price points for the brand; this is why identical 13 mind feel often lured into the store to check if there is new collection on display. Nevertheless, through creating such atmosphere Zara does not encourage its customer to perceive it as being a premium class brand. Zara is positioning its brand as a fast fashion retailer that is able to serve the needs and desires of young individuals who are passionate about the latest fashion designs, but are unable to produce enough income for purchasing exclusive high-class brands. 1.2. Situational Analysis Following is a brief definition of the term ‘situational analysis’ as well as what it actually is and why it important to carry it out. Situational analysis is a process of collecting, storing and analyzing earlier obtained data in order to support a decision making process. There are numerous techniques of how to conduct such analysis; this work will incorporate two of them. One the most common and by far widely used technique is SWOT analysis, which stands for Strengths, Weaknesses, Opportunities and Threats. It allows companies conducting analysis to evaluate their own strong and weak sides and create a better understanding of their competitiveness. However, it is far from a flawless tool, since companies often fail to assess their abilities appropriately. For instance, managers might overestimate the company’s strong elements and underestimate its weaknesses due to misinformation or desire to provide better results to the investors and CEO. A company may have the wrong data regarding some threats or neglect some unobvious opportunities. Although these instances are quite rear in occurrence at well-developed corporations such as Inditex, misinformation still occurs from time to time. Strength and Weakness represent company’s internal factors, whereas opportunities and threats the external ones.14 The particular analysis is simple and not that difficult to carry out, it provides the business with valuable information that would be of use in a variety of future projects. In order to conduct this analysis a company should start from its inner advantages and disadvantages. Afterwards, it can perceive its strong and weak sides from the customer’s perspective. This 14How SWOT (Strength, Weаkness, Opportunity, and Threat) Аnаlysis Works. (2019). Retrieved from https://www.investopediа.com/terms/s/swot.аsp 14 particular method is one of many ways of performing this analysis. Opportunities and Threats illustrate the areas for improve and possibilities for taking beneficial countermeasures. This part of the analysis is tricky as the company may fall a prey to incorrect evaluation of its threats (usually overestimate itself).15 Porter’s Five Forces is a technique to assess possible future and already existing competition as well as other determinants that influence the company’s strategy. Although finding the main competitors does not seem overly problematic, a business should consider four crucial factors in order to obtain quality data. Hence, below they are all covered and explained in terms of their content. Figure 3 - Porter’s Five Forces Source: Porter, M. (2008). On competition Updated and expanded edition. Boston (Massachusetts, Estados Unidos): Harvard Business School Pub. Illustrated in the figure above is the Porter’s Five Forces diagram. Existing competitors is the evaluation of concurrent rivalries. It is one of the key aspects during the decision making process. Since it is important to assess the potential market share and profitability, 15SWOT Аnаlysis – Discover New Opportunities, Mаnаge аnd Eliminаte Threаts, 2019. Mindtools.com [online], https://www.mindtools.com/pаges/аrticle/newTMC_05.htm Rivalry   among   exis(ng   firms   Threat  of   new   entrants   Bargaining   Power  of   suppliers   Threat  of   subs(tute   Bargaining   power  of   buyers   15 as high competition can decrease the attractiveness. Therefore, companies usually start from measuring current level of resistance stemming from competitors. Threat of new entry: it is essential to acknowledge the possibility of new entrance of competitors. It can provide a company with some underlying insights of their market and provide with capability of taking precautionary measures in advance. The main determinant is market barrier, the lower the barriers the easier it is to enter the market and vice versa. Bargaining power of suppliers illustrates the negotiation power of the suppliers. However, conducted by the labor unions or even the labor market is the representation of suppliers in practically any industry. This not only includes raw materials and some basic inputs for production, but also employees and their skills. For instance, some rare professionals may easily ask great remuneration for his/her services. Suppliers can also represent the risk of possible market entrants, if they decide to expand their area of activities new completion might arise. Power of buyers shows the degree of buyers’ influence over the producers’ price strategies and the products’ quality itself. Strong buyer influence can result in the demand of lower prices and thus put additional factors into play resulting in lower profitability. The markets, where the consumer power is strong, place more pressure on producers and resulting increase the risks and costs. Threat of substitute is an analysis of all similar products that can fulfill close to identical functions of the firm’s products. It is not difficult to find plausible substitutes, but it is also easy to overlook them. For instance, some products may seem different however; they might still provide the same qualities and benefits. Poor analysis of possible substitute can jeopardize the company’s performance in the market. Companies may invest higher amounts of money on advertisements in order to differentiate themselves from their substitutes.16 16PORTER, MICHАEL E, 2008, on competition. Boston (MА): Harvard Business School Publishing. 18 design does not reach its full potential in terms of the number of sales and creating potential revenue. 23 Opportunities: increase investment in advertisement, online e-commerce, backing flagship designs, growing market potential and market expansion. The lack of spending on advertisement serves as a unique feature for Zara. However, a more aggressive approach in this field would increase the consumer awareness regarding promotions and possibly increase sales. There are significant developments in the online buying trend, and Zara can definitely take great advantage of it. It is possible to make the products available not solely on the brands own online platforms, but also utilize the e- commerce stores as they can hike up the sales without being cost efficient for the company. Currently the Czech market has a number of such online platforms and some of them seem to have their own loyal customer base. It would not be a problem to choose a liable partner as well as agree on a lucrative partnership for both sides. Typically, successful fashion brands tend to have flagship designs that are frequently present within the stores. Sometimes modified to fit the season trends; however, these designs largely remain the same. Usually identified by the customer demand and the amount of time by which these items sell out of stock. Czech Republic is currently growing and developing as an overall market. Prague is a touristic city that attracts a vaster amount of visitors each year; Zara can definitely capitalize on that. Typically, the rise in consumer earning potential will result in an increase for status symbols that a brand provides. Zara currently has five stores spread out across Prague, it is an opportunity that presents itself and one of the steps that the company can take is further expansion within the Czech market. Emerging less developed countries present a potential for the brand to step into a yet unsaturated market, thus dominate it with the experience obtained from numerous previous expansions. This is also applicable to regional expansion; for example, there is only one Zara store in Brno, Czech Republic and none in Plzen. 24The spending power in these regions is on a rise and it is only a matter of time before they become attractive for a number a fast fashion retailors, which will create currently absent competition. The gross average monthly wage within the whole 23Bhasin, H. (2019). SWOT analysis of Zara – Zara SWOT analysis. Marketing91. Retrieved from: https://www.marketing91.com/swot-analysis-zara/ 24Bhasin, H. (2019). SWOT analysis of Zara – Zara SWOT analysis. Marketing91. Retrieved from: https://www.marketing91.com/swot-analysis-zara/ 19 Czech Republic grew 6.2 percent in the second quarter of 2018. In addition, the unemployment rates are at their lowest level in twenty-two years, amounting to just three percent. 25 Threats: intensified competition, low advertising and reach. Competition is a natural phenomenon, but nowadays it became more complicated, since companies around the world improve and promote on daily bases. Therefore, in every small area that has a Zara store, there is permanent threat competition. Possible changes in legislation regarding working conditions or working hours also provide a threat. On the other hand, as long as the business keeps track of these developments and incorporates them into their business model, it will not present a substantial issue. However, there is still present a certain level of saturation within the semi premium market segment that might indirectly affect the brand margins. A possibility exists that other fast fashion retailors such as H&M will be able to develop a faster supply chain for themselves, thus create even more pressure on Zara in terms of completion. These other competitors stand out in terms of their advertisement techniques, there is more work power as well as finances invested in their marketing. Therefore, Zara should consider running some advertisement campaigns in order to attract more potential customers and retain existing ones. The brand can tremendously increase its reach by not only selling in the physical stores and their own online platforms, but also using other e-commerce stores as well as smaller displays. These popup locations when spread out across a wider area of the market attract more potential customers. 26 1.2.2. ZARA Five Forces Porter’s Five Forces that by many often referred to as an outward looking approach. Existing competition in the industry: the major competitors of Zara are as follows H&M, GAP and Mango. Throughout the research, it also became apparent that a substantial amount of competition within Prague, Czech Republic was also coming from New Yorker. It is a competitive market and companies should be able to provide a unique side to them. 25Bhasin, H. (2019). SWOT analysis of Zara – Zara SWOT analysis. Marketing91. Retrieved from: https://www.marketing91.com/swot-analysis-zara/ 26Bhasin, H. (2019). SWOT analysis of Zara – Zara SWOT analysis. Marketing91. Retrieved from: https://www.marketing91.com/swot-analysis-zara/ 20 New entrants: The industry that Zara operates in does not provide for much opportunity to achieve the economies of scale. Thus, the brand among the other competitors that produce large quantities have a cost advantage in the market. This ultimalty results in higher production costs for possible new entrants and therefore reduces this risk making it a weaker force. There also is a strong emphasis on the customer satisfaction through goof service and some level of advertisement. Although, Zara does not particularly invest much in advertisement, the legacy that it so far created puts the brand awareness on a high level among the potential customers. The begging capital due to this as well as the costs of essential Research and Development are quite high for possible new entrants. Thus, these factors make the possibility of new entrants a weaker force. Industrial and communicational developments made it easy to access distribution channels for companies wanting to enter the fashion market. With a number of outlets selling multi brand items, getting the product on the shelves is easier than ever and this makes it a strong force threat. However, receiving strict licensing that the government often requires in order to bring the product into the market provides the established fast retailors with a safety wall from new emerging companies. The occurrence of digitalization that caused a rapid and fast spread of information across the globe makes it easier to track all essential data about brands.27 In order to compete on the level that Zara is right now, a business would need to have a lot of capital or investment. This would automatically set a company on the raider of the majority of fast fashion retailers right away. Nevertheless, small domestic fashion retailers can also bring a certain amount of competition into the market.28 Bargaining power of suppliers: their bargaining power is often weak since there is a huge number of suppliers within the industry that Zara operates in and not many buyers. Products that are provided by the suppliers are quite standardized, which provides for low switching costs for the fast fashion retailors. Zara often signs specific licensed contract to restrict their suppliers’ flexibility, as the contract requires them to follow certain rules and procedures. The suppliers also do not have the possibility to provide a threat for forward integration in the market that Zara is operating in. The profits of the fashion industry 27Murphy, E. (2018). Zara porter Five Forces Analysis. Essay 48. Retrieved from: https://www.essay48.com/term-paper/13701-Zara-Porter-Five-Forces 28TREHAN, G. and MEHTA, D. CHANGING THE FASHION WORLD A ZARA CASE STUDY. Sansmaran Research Journal, 12, 2014, vol. 4, no. 2. pp. 39-54 ProQuest Central. ISSN 22787801. 23 which are Price, Product, Promotion, Place, People, Process and Physical Environment. A common conception is that companies are to find the balance between satisfying their customers and meeting business objectives in order to be successful. Each element of the model is crucial, in order not to overestimate some aspects and underestimate the others it is important to consider them at all times. It is up to the business itself to decide what proportion of the mix to use. Product: is a good or service provided by the business to the customer. Vast amounts of purchases made, provide some sort of convenience or fundamental satisfaction for the customer. Such as if, a customer buys a coffee machine to have a cup of hot cappuccino every morning or a powerful laptop to facilitate his important daily tasks. Hence, the products that Zara makes deliver a certain value to its customers; the tangibility of product only plays an insignificant role in the creation of this value. Instead, the design, availability and visual satisfaction seem to have a bigger impact. Product is typically at the center of the firm’s marketing strategy in the domestic as well as international markets.35 Since, Zara is an international company its marketing strategy derives from a global perspective. The global product policy focuses on tasks like the selection of products ideal to sell in international market as well as the further development of these products. Typically, there are many ways of doing that. • A company can simply export its domestic product • Product is tailored to fit different types of markets • The development of a completely new product for the international market • Joint ventures Price: is an important part of the marketing mix and some businesses view it as the main element capable of generating revenue. Since, the other three elements solely generate costs. Key factor is to understand the relationship between price and the value delivered by the product. There are several determinants of pricing strategy, which businesses classify into three basic groups. 35 Chee, H., & Harris, R. (1998). Global marketing strategy. London [u.a.]: Financial Times, Pitman. 24 Figure 4 - Price Determinants Promotion: is the next pillar of the marketing mix, which strives to create awareness and stimulate interests for the potential customers. Promotion can take form of advertising, public relation events, direct selling and implementing discounts. These elements are not mutually exclusive and used in a variety of combinations.36 In the table below, are various communication tools that are commonly applied. For instance, a customer can get information about the approaching price discounts in newspapers or journals distributed during public events. It is an example of how components are interconnected and equally important for successful a promotion strategy. 36Phillips, C., Doole, I. and Lowe, R. (1994). International Marketing strategy (London :International Thomson Publishing Market   Factors   •  Compe((on   • Market   structure   •  Income  levels   Internal   Factors   •  Price   objec(ves   •  Produc(on   costs   •  Distribu(on   costs   •  Profitablity   Environmental   Factors   •  Regula(ons   •  Exchange  rate   •  Infla(on   25 Advertising Personal Selling Public Relations Sales Promotions Newspapers Magazines Journals Television Radio Sales Presentations Sales Meetings Telemarketing Annual Reports Events Lobbying Corporate Image Price Discounts Samples and Coupons Trade Fairs Direct e-mails Table 1 - Marketing Communication Tools Source: Phillips, C., Doole, I. and Lowe, R. (1994). International Marketing strategy (London: International Thomson Publishing It is key to recognize factors that influence communication within the market. Language barriers are common; companies at times will have to change their slogans, brand names and general promotional material within a different market. Businesses do so to ensure that the core message that a company is trying to transmit is not lost in translation discrepancies. Legal and regulatory factors play an important role as well; countries enforce their own regulations and expect all firms operating within in their boarders to abide established rules. Media availability factor can affect the ability to reach out to the targeted segment. Countries have different levels of development in this sphere and different regulatory environment. Additionally, the presence of competition in the market is significant in changing the promotional environment and approach. Since, a company would have to compete with domestic as well as other international firms within the market. Place: does not only refer to the physical location, it also includes a number of other elements that contribute to the accessibility of a product by the consumer within the market. The place pillar consists of channel length, channel alignment, coverage, inventory management and logistics. The distribution strategy of the company seems to be an important aspect of place. 28 future costs based on the target price.40 This allows fixing of the profit margin for every sold item; hence, it becomes easier to calculate the future profits. The company takes the costs of production into consideration as well, those items that are costlier to manufacture due to their design or material will typically have a higher price tag in the stores. Although the prices still exceed those of some competitors such as H&M, the product lines make up for that through the extra features and quality. One of the latest strategies that the brand utilizes is bundle pricing, the items at the store are bundled together and sold at a lower price than if a customer was to buy them separately. Another innovative method of Zara is optional product pricing; the base product is sold at one price and certain accessories that fulfill the whole design are to be purchased separately. 41 This works well in attracting the potential consumers with the primary price of the product and as soon as they like the design, there is a greater possibility of those extra purchases. Since Zara does not spent a substantial amount of their money on advertisement, this also provides them with the opportunity to set lower prices on their products. Additionally, the company has opened low cost production factories across Asia, which allows them to produce garments and accessories at lower costs.42 Promotion Zara takes advantage of various trade exhibitions and events of such nature, due to their nature of being cost efficient and grasping the attention of possible investors that might be looking to open a franchise with the brand. The company at certain locations has an outstanding performance in personal selling; the well-trained employees are good at providing a level of service that pushes the potential consumer to buy a product. 43 It is evident that Zara is not fan of promotional campaigns, as it barely dedicates funds to 40Lopez, Cаrmen, and Ying Fan. "Internаtionаlisаtion of the Spanish Fаshion Brаnd Zаrа." Journаl of Fаshion Mаrketing аnd Mаnаgement 13.2 (2009): 279-96. ProQuest. 5 Feb. 2019. 41 Davis, H. (2018). Zara Marketing Mix Strategy 7Ps Analysis. Essay48. Retrieved from: https://www.essay48.com/term-paper/13701-Zara-Marketing-Mix 42Yuchenpаng, /. “Zаrа's Secret to Success Retаil – Its Pricing Strаtegy.” T1 2016 MPK732 Mаrketing Mаnаgement (Cluster B), T1 2016 MPK732 Mаrketing Mаnаgement (Cluster B), 2 Mаy 2016, Retrieved from: https://mpk732t12016clusterb.wordpress.com/2016/05/02/zаrаs-secret-to-success-retаil-its-pricing- strаtegy/ 43 Davis, H. (2018). Zara Marketing Mix Strategy 7Ps Analysis. Essay48. Retrieved from: https://www.essay48.com/term-paper/13701-Zara-Marketing-Mix 29 finance its advertisements. The brand prefers to communicate with its customers via social networks where they can receive important feedback about the service they provide. Zara’s promotions are not common on TV, newspapers or even social media. Moreover, the brand does not even promote its upcoming sales in advance, for instance, last Black Friday that took place Zara did not promote in advance, until the final day. Since, the company does not irritate customers with constant advertising; it follows its own way of promotion by mainly relying on word of mouth. Around ninety percent of our respondents know about new Zara products from their inner circle, rather than any other communication channels. Zara is quite successful in several social media platforms such as Facebook, Instagram and Twitter. Zara uses them to inform their potential customers of new fashion designs and upcoming collections. Facebook page alone accounts for twenty-six million of the company’s followers. Place Zara is present in nearly ninety-six markets and has around 2200 stores. There are four stores in Prague excluding those that are Zara Home. The brands presence is also strong in the digital world, as customers can easily purchase products on the company’s online platforms from most electronic devices. As mentioned earlier, place does not only imply a physical location, but also various distribution channels and logistics that are involved. Zara applies a so-called ‘agile supply’ in their supply chain. It means using a local supplier and spare distribution as well as focusing on time management. Agility gives the company a possibility to meet their demand with high efficiency. The company also incorporates an omni-channel distribution system that allows the customers easy access to the brands products by merging its online and offline store processes together. Zara currently has over five-hundred various suppliers who provide the manufacturing facilities with the raw materials needed for production. Typically chosen by their geographic placement, in order to allow them to deliver the materials quickly. 44 Moreover, vertical integration allows controlling of the entire process from the very beginning to the final sale. Another technique used by Zara is producing in small batches to evaluate the current demand and 44 Davis, H. (2018). Zara Marketing Mix Strategy 7Ps Analysis. Essay48. Retrieved from: https://www.essay48.com/term-paper/13701-Zara-Marketing-Mix 30 attractiveness of new clothing designs. For instance, the company sends a new collection to one of their stores and analyzes the success of the sales. If the results are promising then Zara produces more of the same collection. It is another factor why Zara rarely has discount sales apart from mid-season sales, as there is often little spare stock left.45 People Zara is quite particular in choosing it employees for the sales department teams, since they play an important role in developing simple but effective marketing strategies. Putting into consideration the preferences of the potential customers is important for the company. The customer service of the brand is well developed, the people who work in this department receive training to provide the consumers with answers to any questions they might have and provide tangible solutions. Zara values the outstanding employees that work with the company’s raw material suppliers since these people are vital in providing the brand with an opportunity to put out the best quality products possible. 46 Those who work in the physical store locations of Zara represent the face of the company to the consumer and create the important for the brand customer experience, thus they are of high value as well. Process Zara brand has developed specific systems for the retailors to notify the suppliers when their stock runs low; the products this way are available at the stores more often. The company has created a delivery system of good quality, thus the consumers can receive the products at their home doorstep without difficulties. The fast fashion retailer is constantly investing in research of various market opportunities that would bring profit to the company and satisfy the customer’s needs as well as desires. It also collects valuable information regarding the market segment through the consumer feedback received at the stores, helplines and social media networks. 47 45Bаrrаtt, Mаrk, аnd Simon Eаgle. "How Аgile is Your Supply Chаin?" Supply Chаin Mаnаgement Review 21.2 (2017): 34-41. ProQuest. 9 Feb. 2019. 46Davis, H. (2018). Zara Marketing Mix Strategy 7Ps Analysis. Essay48. Retrieved from: https://www.essay48.com/term-paper/13701-Zara-Marketing-Mix 47Davis, H. (2018). Zara Marketing Mix Strategy 7Ps Analysis. Essay48. Retrieved from: https://www.essay48.com/term-paper/13701-Zara-Marketing-Mix 33 pricing per country, taken into account are both the competitors as well as local retailers and Inditex group brands.48 Despite offering somewhat different products, both brands target a similar type of customer. While H&M offers a higher variation of the products assortments, Zara focuses on providing the customer with the newest trends by artificially creating scarcity of the clothing lines and giving itself room for constant innovation. However, depicting from the research many potential consumers position these two brands in a similar light when it comes to shopping in a fast fashion retailor store. The trend that repeated itself was that all three Zara store locations that I used for primary research seemed to have the main competitor of the brand, H&M, always located close to the Zara store. Typically, these spots are prime locations within the shopping centers, thus it is quite logical that the two competing brands and one of the best fast fashion retailors in 48 Fashion Data Report (2018). H&M vs. ZARA. The data behind H&M and Zara battle for fashion retail. Retrieved from: https://s3-eu-west-1.amazonaws.com/landingi editor- uploads/z1HG7lbh/Retviews._H_M_vs_Zara_Report.pdf Figure – ZARA vs H&M prices Source: https://s3-eu-west-1.amazonaws.com/landingi-editor- uploads/z1HG7lbh/Retviews._H_M_vs_Zara_Report.pdf 34 the world would be the once to get them. However, it also present the opportunity for the loss of potential customers, since the rivalry brand is in the eyes sight. “Nový Smíchov”, “Westfield Chodov” and “Arkády Pankrác” shopping malls are conveniently spread out across the whole city of Prague, Czech Republic. Therefore, the customer segments have a slight variation and at the same time cover the market segment Image 1 - Novy Smichov Source: https://novy-smichov.klepierre.cz/Mapa- centra. Image 2 - Arkády Pankrác Source: https://www.arkady- pankrac.cz/obchody/zara/?location=p10 Image 3 - Westfield Chodov Source: https://cz.westfield.com/chodov/store/H_o_M 35 of the whole city. These locations have its disadvantages in terms of possible presence of competitors on the same floor. On the diagram taken from the mall’s official webpage, it is evident that a few fast retail stores base themselves on the same floor as the Zara store. For instance, the Mango store is also located on this particular floor; it is near the H&M, and the C&A boutique. 38 We conducted the interviews and observations during two days of the week, which were Wednesdays and Saturdays. The weekend proved to be more productive in terms of number of participants in the interviews. Wednesday was quite busy; the majority of customers seemed to be in a hurry and less responsive to us approaching them. For privacy and conscience reasons, there was no video taken of the observed participants. A record was kept of the time spend by consumers that we tracked; this was particularly done to see whether the time spent correlates with number of purchases made. Thus, I used linear regression where independent variable X plots against dependent variable Y. Serving as additional outcome of the general research. 3.1. Survey development Frequently suggested by the majority of sources that I came across during my research the customer profile of Zara is as follows; a generally younger segment of the population and in particular women that obtain a mid-level income. These individuals usually have a sense of fashion and possess a desire to keep up with the latest trends. Premium clothing lines are typically very expensive; Zara provides its customers with a somewhat visually similar 39 product at a much lower price point. Even though the quality might be nowhere near, to what the higher fashion brands provide, the design is up to date. Below is a set of questions, which either will determine the stated hypothesis above to be true or disregard it. The questioner I conducted is both demographic and psychographic: • Age? (Here the customers are asked to choose a range: 16-20, 21-26, 27-33, 34+) • Current occupation and the level of net-income? (Below 10.000 CZK; from 10.000 CZK to 16.000 CZK; from 16.000 CZK to 21.000 CZK; from 21.000 CZK to 27.000 CZK; above 27.000 CZK) • Interests and hobbies? (Open question, targeting the first thing that comes into the subjects mind) • Do you usually follow fashion trends? Rate your interest from one to five, where one mean do not follow at all, three represents a moderate interest of fashion and five stands for high interest in a number of different fashion brands. • What appeals you the most in the products that Zara provides? (Open question) • How do you get to know about Zara’s promotions? • Do you consider Zara to be a fast fashion retailer? These particular questions will determine a detailed customer description that visits the Zara stores in Prague, Czech Republic. The respondents took the questioner and our volunteers carefully recorded the results. To conduct the qualitative research, the method chosen was in-depth interviews with the customers of Zara. It was of typical structure, one-on-one interviews with some open-ended questions that ultimately helped us gather better data regarding the concerns of the operational process of Zara brand. This particular method gives more room for variation of the subjects’ answers and is more conversational; thus, we were able to gather a large amount of information that helped to better facilitate the initial objective of the paper. Purposive Sampling or also known as selective sampling seemed an ideal choice in the case of interviewing the customer pool of the brand. Since sampling for proportionality was not 40 the primary objective or a possibility in general, the decided method helped to reach within a tight period the targeted objective. Prior identified customer segment of Zara had composed the targeted group for the interviews. Particularly we chosen young women between the ages of twenty and twenty-seven to be our essential target. This decision proved itself quite product at the early stages of the research, since the majority of the customers that visited Zara stores in the pre-selected shopping mall locations were in fact women of this age group. The way collected data facilitation process took place is through coding the obtained transcripts. The focus of attention was on the points that repeated in several places throughout all transcripts, or if the interviewee particularly mentioned something to be of importance as well as in case of possible information similarity to reports and studies analyzed during the primary research stages. The derived interview questions came from numerous similar, previous studies published in relevant marketing journals. We modified them to fit the objectives set before the secondary research; however, the primal concepts stayed the same. They included the perception of the brand, age grouping, social status through occupation and income as well as interest in the particular field, market and product. The secondary research successfully covered these aspects and provided excellent insight into them. 43 How closely do you follow fashion trends? (Females 21-26 y/o) Figure 8 - Major Group, average score: 3.6 Source: own research Twenty out of thirty-five respondents closely follow fashion brands at least once a week and are well aware of the latest news regarding new and upcoming trends. Illustrated in the figure above is a more precise analysis of this is. The primary features that the customers perceive when purchasing Zara products are design, quality and comfort. Product price is quite fair and the consumers did not feel financially deceived by the brand. Zara seems to be doing a good job in positioning their market strategy, since thirty-two out of thirty-five interviewed consumers from the major group perceived Zara as a fast fashion retailer with the availability of the latest trends. Thus, there is no issue of misperception between the brands targeted segment and ideology. To the question of “how do you know about Zara’s ongoing promotions such as sales?” ten respondents were uncertain, the other fifteen said that they usually become aware of such information from their friends and relatives by word of mouth. The remaining ten consumers mentioned only noticing any sort of promotion when they themselves visit the store. A. Not at all 2 B. Close to moderate 3 C. Moderate interest 10 D. Close to high 12 E. High interest 8 44 The second part of the research focused on identifying customers’ behavior depending on the day of the week as well as further tracking the subjects that did not make a purchase at the Zara store. Nearly eighty percent of all responses recorded in the research occurred exclusively during weekdays. Seventy-eight percent of all respondents held an employed status at the time and in the majority cases work part-time. Which certainly contradicted our initial expectations, since we expected the working class not to participate as much in the questioner due to possible time constrains. However, the fact that research collection also took place during the weekends might have played a deciding role in that. Below is the demonstration of the number of purchases that took place within the general group. Figure 9 - Number of purchase Source: own research We have proven the hypothesis since all sixteen people who did not make a purchase in Zara, ended up buying something in other stores. While only three out of nineteen, who bought products from Zara, also went on to acquire something from other stores. Rounding up to 100% in first instance and sixteen percent in the second. A high number of potential customers however had not made any purchase at all. We divided the general group of respondents into two sub groups. The group of interest is the second one; it consisted of sixteen people who had not purchased anything at Zara and 14   5   16   Female  21-­‐26   No  purchase   One  Purchase   Purchase    more  than  one  item     Major  group:   number  of  items   purchased  in  Zara   45 served as recommendations providers. Peers that volunteered to help in data collection approached seven out of those sixteen subjects once more to clarify why they did not make a purchase at Zara and instead chose a potential competitor of the brand. Disregarded in this case are the Inditex group brands and if the research participants made a purchase in one of them, they would not be approached with the same question. We did not take into consideration other age groups, for instance, no male age groups received further observation, as eight out of nine subjects bought at least one item of clothing or other product from Zara. The younger group of women in case of not purchasing anything usually swiftly disappeared from our sight; they also do not fall under the category of the main market segment for the brand. Six customers ended up buying what they desired in Massimo Dutti and three in Bershka. Five made their purchase in H&M, one in Mango and the remaining single individual acquired a t-shirt from New Yorker. From those who bought their items in H&M, a few mentioned checking the Zara online shop before going to the mall, but they could not find the desired item or there was no needed sizes available. Thus, they decided to look for alternatives in the H&M store. Zara’s web-page system frequently has a lag with real time stock management system. Therefore, I addressed this in the discussion with Zara’s employee (my acquaintance) to gain a deeper understanding of the issue. Another important matter to address is that a number of the customers mentioned the wait for the dressing room to be time consuming and they found it quite dirty inside. This will considerably decrease the customers’ experience and might cause them to leave the store with empty hands. A woman that bought garments from Mango stated, “I actually do not like Zara as much anymore, since I often find spoilages in clothes”. Seven people may not seem to be a persuasive number; however, it is ten percent of all customers researched over a five-day period. All of them had a particular reason for not purchasing at Zara and instead going to the competitor. This causes for speculation to considering that there are much more unsatisfied customers at Zara within this shopping mall. There is 88.9% of variation in the quantity of products purchased at the Zara store.49 49Grech, V. (2018). WASP (Write a Scientific Paper) using Excel – 13: Correlation and Regression. Early Human Development, 122, pp.60-63. 48 5 Recommendations The conducted primary research helped in discovering certain weaknesses, process improvement opportunities and forces in the market that have an effect on Zara company operational procedures. The threat of new entrants is not the brand’s primary concern; however, it is present to a certain extent. Rapid development of globalization in our modern age provides many fashion companies with opportunities that have not been there before. Although INDITEX is a giant at the industry it operates in, other fast fashion retailors now have the possibility for fast expansion. Zara can utilize its cost advantage possibilities in order to fight off new entrants, thus ultimately take advantage of the economies of scale. In addition, the brand can invest some time and finances into the differentiation of their new product lines from those of the possible new entrants. The brand already identifies well among the consumers within the Czech market, so spending on advertisement for that particular reason is not necessary. Running some promotional campaigns however would prove itself quite beneficial. The bargaining power of suppliers in the industry is not particularly strong. Thus, of Zara identifies through its market research a better supplier of raw materials it can confidently begin the switching process as the costs of it are not high. Since the industry is a quite an important buyer for the suppliers, the brand is able to further discuss terms of partnerships with their existing raw material providers and reach a common ground for better mutual benefit. Zara is able to build a larger customer base by investing more resources into the marketing efforts of the company; this will result in greater brand loyalty and even better consumer recognition. The quality the Zara’s products is reasonably high for a fast fashion retailer, but to illuminate the threat of substitute of their products further improvement of quality would prove itself beneficial. The consumers need to feel as if they are getting the ultimate bargain, best possible quality product for the lowest possible price on the market. To minimize the effect from the industry rivalry Zara can focus more on obtaining new customers that are stepping into the brands market segment rather than retaining and winning over the existing once. It became apparent that the issue of the official webpage not displaying information that is “up-to-date” is only correctable from within the company’s headquarters. The other issues influencing customer satisfaction however definitely take place within the confinements of 49 the physical stores in the market of interest. Thus, store’s internal management can solve them. An exception is the quality control of stock at the receiving stages however; the distribution facilities should address this issue separately. For instance, some stores are franchises or joint ventures and the procedures taken to facilitate the stock they receive might differ. A part of another weakness that Zara store in Prague, Czech Republic suffer from is a high employee turnover rate. The brand is spending a large amount of unnecessary costs for constant training of the new workforce. Therefore, providing extra value to being a part of the company would considerably help retain the employees. Typically, companies achieve this through providing food stamps, employee discounts on some of the products at the stores, and higher flexibility in working hours as well as vocation opportunities. The majority of working personnel at the physical store locations seem to be from Generation Z and partly Generation Y and these individuals value their feeling of freedom and choice above all. The earlier mentioned opportunities in the SWOT analysis of Zara that the brand should utilize are flagship designs and expansion into more regional markets within the Czech Republic. A number of fashion brands have their flagship designs; they go through some sort of modification from season to season but largely remain the same. The product lines stand out by having high sales volumes at the launch and typically are in demand throughout each season. Zara has had a few of such product lines, the brand can recreate them with new design elements and through this increase sales as well as possible the brand loyalty among existing customers. The spending opportunity of the Czech population is increasing, and new potential markets emerge that can be taken advantage of. Other developing cities like Plzen and Brno are ideal for possible future expansions, Zara can take advantage of them before their will be competition such as H&M stores in the market. Naturally, it is quite disappointing to visit a business with a deceiving expectation of what it might offer. Mentioned by the majority of the sixteen re-interviewed consumers in the secondary conducted research as well as our mystery shoppers who confirmed the stock to be an issue. Particular issue of ‘in stock’ information in our case has two possible causes, one of which is the absence of appropriate training of new employees and the other is inaccurate information provided on the online platforms of the business. It will not be appropriate to underestimate or neglect any possible cause, from the researcher’s 50 perspective it is more productive to solve both of the possible issues simultaneously. The process of facilitating new employee’s account setup must take place prior to his/her first working day.50 As soon as the candidate confirms his/her commitment to the manager and passes the recruitment process, he/she can create the account and receive access to the ERP system. Thus, the system will not neglect or miss any information when a new employee begins their daily operations. Zara has its webpage well integrated with ERP system, however small corrections are to find their place. Every software should undertake constant improvements and updates for its proper exploitation. The rapid change and progress in the technological world makes these corrections essential for smooth operations of the business online. New released devices also create higher web traffic on the websites, and might decrease the speed at which the information travels between the business and the customer. Figure 10 - ERP and website Source: https://www.outerboxdesign.com/web-design-articles/erp-ecommerce-website-integration The figure above represents data flow between these two business components. ERP is responsible for correct data input regarding the availability of the stock, however the exact procedures used by Zara in sorting and obtaining this information are not disclosed by the company. Thus, we can only contemplate over its daily operational settings, but improvements in providing real time stock information will certainly increase customer satisfaction. The second issue is largely dependent on the store maintenance process. We also obtained this information a number of times through the secondary research. It is not something that needs a vast amount of new financing. It can be resolved by outsourcing the task of keeping the changing rooms as well as other areas of the store clean to a third party business. 50Creating New Users. (2019). Retrieved from https://docs.magento.com/m1/ce/user_guide/store- operations/permissions-user-new.html 53 Overall Zara has well utilized its market segment research and focused on the right customer groups. In Czech Republic and particularly its capital city Prague the brand is well recognized among consumers that follow fashion trends as well as those who are simply looking for good product at an affordable price. Zara has a good presence with high followings on various social media platforms. The company can utilize this to their advantage and reach a much wider spread of potential consumers for their products. Further expansions are also of benefit for the brand, especially regional in those markets were Zara is already operating and has a good recognition from the targeted market segment. Markets are constantly evolving and new opportunities present themselves. It is important for fast fashion retailors such Zara to constantly evolve and grasp the aspects that bring improvements to the brand, since the industry is providing new entrants with an easier possibility to get involved in the industry. The process of marketing a product has drastically evolved over the last decade, and even though Zara is not particularly dependent on this aspect of the operational process, the new entrants through utilizing this strategy might ultimately present a possible competition for Zara. 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Retrieved from: digit. hbs. org/submission/zara-leverages-data-analytics-to- understand-consumer-tastes/. 63  64 Table of figures Figure 1-Managing marketing strategies and the Marketing Mix .................................................... 7 Figure 2-Steps of marketing segmentation, targeting and positioning ............................................. 9 Figure 3- Porter’s Five Forces ........................................................................................................ 14 Figure 4-Price Determinants ........................................................................................................... 24 Figure 5-Age structure .................................................................................................................... 41 Figure 6-Occupation ....................................................................................................................... 41 Figure 7-Salary ............................................................................................................................... 42 Figure 8-Major Group, average score: 3.6 ..................................................................................... 43 Figure 9-Number of purchase ......................................................................................................... 44 Figure 10-ERP and website ............................................................................................................ 50