To achieve such spectacular results, Zara doesn't market itself the way other fashion brands do. That is what I'm going to show you in this article. For instance, algorithms that combine the rate of sale of various products as compared to similar products during the same seasonal cycles could yield caveats enabling Zara to adjust manufacturing before peak demand is reached. This strategy is visible through the attention to each detail of its showrooms. If products are discounted to remove excess inventory, customers may look for discounts in the future, delaying purchases. The term postponement in the supply chain is similar to its actual meaning. What is different about retailers like Zara, H&M and Uniqlo is that they combine low cost production with speed to market and customer-focused agility. Fast product replacement does two things for Zara. 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. Although in 2020, because of the COVID-19 epidemic, it closed 16% of its stores, for a while it was adding 500 outlets per year. By continuing, you agree to our Terms and Conditions. Zara commits to only 50 to 60 percent of production in advance of the selling season, compared to 80 percent for most clothing retailers. Postponement is a business strategy employed in manufacturing and supply chain management which maximizes possible benefit and minimizes risk by delaying further investment into a product or service until the last possible moment, or where a manufacturer produces a generic product, which can be modified at a later stage before the final distribution to the customer. This article is accurate and true to the best of the authors knowledge. Thorbeck lists the excuses that US retail executives offer: Thats not our customer. While this may not have much relevance to business operations, analyzing Zaras advertising lends some understanding of Zaras overall philosophy and strategic approach. Zara limits inventories, but not at the expense of profits. They must weigh the benefits of scaling markets with the prospects of them losing some of the strategic advantages that enable them to do so. Zara is also prepared to hold significant stocks of fabric to allow the clothingproduction system to be decoupled from the longer lead time fabric production system, which is helped by having a substantial level of fabric supply originating from Inditex. In contrast, logistics postponement involves delaying the distribution or actual delivery of a product until customer demand is known. 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. A pair of articles in Sourcing Journal by John S. Thorbeck document the financial gains of the Zara-led transition, as well as the resistance of traditional US managers to embrace a better way and their willingness to live in a kind of retail denial., Fast fashion has been around for some time. But Zara doesn't compromise the product's quality, so it will be lower when compared to other brands such as Hugo Boss or Uniqlo. First, it enables Zara to adapt to consumer demands quickly, aligning itself with demand in a meaningful way. 1) The Postponement strategy Besides the supply chain efficiencies and marketing philosophies, one of the key factors for Zara's success is its postponement strategy. The result is the brand's sales keep getting higher, and the market share keeps increasing. It has a clever marketing strategy that can differentiate itself and find higher visibility as well as loyalty. Finally, the full postponement strategy is the highest level of delay in the supply chain, which makes use of both manufacturing and logistic postponement. There are many factors that contribute to the success of Zara, but one key strength is definitely Zara's marketing method that focuses on the customers. 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. Because Zara manufactures its products in Europe, it can very rapidly change designs to accommodate dynamic demand for various styles. Don't use plagiarized sources. Zara Postponement Strategy. (2004). Vertical integration seems most fundamental to Zaras success because it enables many of Zaras periphery stratagems. High product replacement also carries risks. Zara really is heads and shoulders above many of its competitors and approaches retail fashion in a unique way. Lewis, J.A.D. Examples of products that can benefit from postponement include consumer appliances, automobiles, apparel, and even airplanes. Fewer sales translate into increased margins. Fast Fashion can apply. 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 manufactures most of its products in Europe where it is more costly. The Online Store Starter Kit will be delivered to your email after signing up for Shopify using the custom landing page Shopify made for AVADAs audience. "How Zara Grew Into the Worlds Largest Fashion Retailer. These are used to analyze what is on trend or being said on social platforms. 1 of 18 Supply Chain Management of ZARA Nov. 14, 2013 116 likes 390,878 views Download Now Download to read offline Business Technology Sai Praveen Chettupalli Follow Deputy Manager at IndusInd Bank Advertisement Advertisement Recommended ZARA Case Study: Role of Supply chain in organizational Success sadia butt 9.5k views 27 slides Zara works closely with its suppliers and customers, to enable constant information to flow smoothly and quickly up and down the supply chain. This is one of Zara's first steps to move into online selling more, and it received good feedback from the customers. Zaras commitment to environmental sustainability is readily identifiable. In a sort of proactive way, technology, already readily implemented at Zara, could be expanded to connect preliminary data points and offer forecasts. Especially how Zara leverages very sophisticated psychological tools into increasing profits. Shelley E. Kohan, assistant professor Fashion Institute of Technology, recently shared an analysis of the Zara difference based upon the 4Es marketing concept. But Zara is not reactive in the same way that other retailers are. 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. Postponement is defined as "a strategy to intentionally delay activities, rather than starting them with incomplete information about the actual market demands" (Yang, Burns, & Backhouse, 2005). Zaras founder, Amancio Ortega Gaona, is known for his reclusive personality and aversion to media outlets. It considers its strategy carefully and has a long-term approach. This leads us to a traditional marketing research method, which is called the 4p's strategy, which includes products, place, price, and promotion. Instead, it introduces three salient components of Zara: the business model, the environment, and society at large. And Zara fully understands this. Postponement is first implemented in manufacturing processes to reduce inventory cost and improve service level within the company while the product variety increases. This creates a unique brand image and grows the brand's market share faster, especially among millennials. And it underlines its cost-cutting strategy as it relates to sustainability. Some Zara stores have very premium pricing, whereas others have much more affordable prices, based on the locations and targeted customers. The location strategy of Zara is to put stores in high-street retail areas of major metropolitan cities. 500,000 items were stocked and sold out in just three days. an academic expert within 3 minutes. Sometimes high demand for various fashion items wanes very quickly. A push strategy aims to keep products in stock even before the customers order them. Many report the quality of Zara products to be quite good compared to others that offer similar, but much more expensive products like Armani, Gucci, or Prada. Two key components make up Zaras distinctive strategy. He got his start in the clothing business at the age of 13, when he went to work for a local shirtmaker in A Coruna , Spain, delivering the shop's goods, which included lingerie and dressing gowns. Zaras strategy is to project high-class fashion from all of its retail locations and to do so right next door to its luxury brand competitors. The screenshot below shows a closeup satellite view of this facility. This brings the same environment and experience for customers everywhere. In contrast to traditional make-to-forecast approaches, postponement is a make-to-order tactic, where products are rapidly customized from stocks of almost complete products, often in close proximity to customers. There are various models on postponement covering a continuum from pure standardization to customization. A pull strategy produces goods in accordance with the demand of the customers. Zara's business strategy is to adapt the offer to customer needs in the shortest possible time. This was driven by investments in information technology and utilizing designer groups. Interestingly, Zaras (Inditex's) mission statement here makes no mention of clothing either directly or indirectly. Moreover, the firm employs standardisation of the design modules. The length of the delay is specific to a product. Branded value aligns customers needs with a brand deliverable, Kohan stresses. In the new economy, the customer's experience matters more than the product itself in the mind of the shopper. In order for those postponements to happen without affecting time to market, Zara operates an extremely efficient value chain management. . Postponement is defined as "a strategy to intentionally delay activities, rather than starting them with incomplete information about the actual market demands" (Yang, Burns, & Backhouse, 2005). These helps reduce the stock-keeping units in the supply chain (Pagh and Cooper, 1998) while improving customer responsiveness (Yang et al., 2004a). Once common components are paired together in a platform, the number of options reduces dramatically. As Zara only has one large distribution center in Spain, more distribution centers around the world will be required in a short time, especially if they continue expanding at a rate of 500 stores per year. All of these processes enable quick dispatch of products driven by real demand. When it comes to promotion, Zara has also used the power of social media channels effectively. Its first store already featured low-priced lookalike products of high-end brands. Shipments from the distribution centres to stores are made twice a week, based on customer demand in each individual store. To get a better understanding of Zara's marketing strategy, we need to see all the important sides of marketing. In this paper, we will analyze how Zara achieves mass customization through postponement, with a particular focus on the supply chain structure, relationship and enabling activities supporting postponement strategy across the supply chain. Fashion trends come and fade quickly, but Zara is always able to quickly jump on the wave and bring exactly what buyers desperately need to buy. 2023 The Arena Media Brands, LLC and respective content providers on this website. Interorganisational Time Based Postponement in the Supply Chain. Pagh, J.D. Shoppers feel like if they buy items from Zara, other people won't have the same outfit. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters. The founder Amancio Ortega is currently the sixth richest man in the world. : 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? It is beneficial to delay commitment to product-specific characteristics as late as possible to avoid a mismatch between orders and inventory on hand. 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. With that, rapid product replacement cycles themselves enable other stratagems. Push and pull strategy refers to two different approaches to managing the flow of goods in a supply chain management. But does this multilevel psychological game really increase profitability? While Zara is fast at responding to demand by ramping up manufacturing, it cannot match high demand in a short period of time. Amancio Ortega Gaona, Spain's wealthiest businessman, founded Zara in 1975 and later created Inditex as a holding company. This vertical integration approach gives Zara a lot of control over how it operates. The old pricing formulaPile it high, sell it cheapworked well through the 20th century, but in the new experience economy, it has been replaced by the concept of exchange. . All of the capital-intensive steps are executed within Zara-owned factories whereas labor-intensive operations are outsourced to their partners (Cheng and Choi, 2010). Harvard Business Review, November 2004, 104-110 Garci-Dastugue, S. and Lambert, D.M. The following section summarizes the key postponement types that Zara utilizes in their value chain. It tries to capitalize on the store experience by always offering reasons for the buyers to revisit the stores. Opinions expressed by Forbes Contributors are their own. Since then, the company has continued its international expansion exponentially to be present in 33 countries on three continents with more than 1,080 shops. You can see from Chart 3 above that the quantity of products Zara discounts pales in comparison to other retailers. J.M. In line with Zaras high-fashion-at-a-low-price mantra, Zaras location strategy does not lack grandiosity. Zara nails that.. For Zara, their strategy has been quite successful. p. 154. For Zara, it is not about how much it spends on advertising, but it is all about the customer. There are various models on postponement covering a continuum from pure standardization to customization. The items have their own fashion seasons that come and go even faster than the rest of the fashion world. For example, rapid product replacement cycles relate closely to vertical integration. Theres no additional cost for you! Buyers now want an item's value to be beyond price, with more time-saving and convenience. Based on this research capability, Zara's products in every store reflect unique customers' needs in terms of physical, culture, or climate. Postponement can be a powerful strategy for managing product variety. 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. Understanding that they want trendy but affordable fashion items, Zara sharply provides the latest styles at low prices. Zaras strategy is to get as close to them as possible, (Suzy Hansen 2012). Marketing aims and objectives Zara mainly operates thier business on objectives which range from being short term and long term. Hausman analyzed public data available from 53 retail and short-product lifecycle businesses. It manages the design, production, shipment, display, promotion, sales, and feedback itself, relying only diminutively on outsourcing. The idea is that low inventories create a sense of urgency among customers. 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. The flagship locations are located in the most critical markets that appeal to their most loyal shopper. Heidelberg: Springer, 54-57 Ferdows, K., Lewis, M.A., & Machuca, J. Kids versions are available too. Zara is revolutionizing its products even more" %}. Yet as in other sectors, the economics is forcing the change. By adopting this strategy, Zara can avoid the high product obsolescence costs that are often faced by fashion apparel retailers. It doesn't want to be a trendsetter; it just wants to be a fashion company that customers need. 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. 2004. Through this technology and mobile connectivity, it links a customers shopping visit and provides access to inventory not present in the specific location. For example, Japan stores have smaller sizes, Arab stores have special women's clothes, South America stores have different seasonal products. Its store's design is modern, luxurious, and predominantly white. More specifically, Zara could be counteracting natural human psychology that identifies more expense with greater quality and prestige. For example, customers prefer to order flexibly from manufacturers so as to be able to respond flexibly to their . So not only buyers are trendy, but they are also unique, which sounds pretty cool like being in a cool kids' club. Manufacturers adopting postponement strategy can lower operational cost and quickly respond customers' personalized demands. Its not us saying you must have this. 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. Estimates of the costs of markdowns alone range widely, some as high as 33 percent of retail sales. This creates a throughout strategy for the company's growth, and it seems to work because Zara has managed to establish itself as one leading fashion retailer globally. In 2015, a Zara store in Tokyo received a lady named Miko who asked for a pink scarf, but there was none. 7 days later, all Zara stores worldwide started selling pink scarves. Zaras advertising is limited to its catalogue and its logo on retail store bags used to carry out purchased items. But this doesn't mean it has no focus on marketing. The company base thierkey strategy on every single customer who has a satisfied experience by purchasing fashion online and who wants to repeat online shopping. So this statement might wax unrealistic as sentiments usually indicate customers are happy. This relates closely to Zaras lightning-fast product replacement, unparalleled in the industry. Without close communication between supply chain units, rapid product replacement cycles would be impossible. 2.1 Postponement strategy According to Van (2001), in a manufacturing system, post-ponement strategy aims not to delay product customization activities until customer demands are revealed [7]. And the companysstorelocation strategy is another aspect of its every place factor. Show More Similar Documents Free Essay 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. Mass customization has become a requirement for many businesses especially in the dynamic, fast-changing industries. Zara, the Spanish Inditex Group subsidiary, started its international expansion in 1988 in Holland where the first overseas store was opened. How about you? Ferdows, K., M.A. Rather than spending more on pushing marketing out (it only spends about 0.3% of sales on advertising), Zara pulls customers in and turns them into brand evangelists to spread word of mouth about the brand. Initially launched in 120 stores worldwide, such technology is irresistible digital-honey to draw millennials into the store and shop. The New York Times, 10 Nov. 2012. Focusing on novelty. Personal commerce is the every place where the customers are, rather than only in the physical place the brand is present. Product used to be king, but not anymore. Ortega created a new working process that is called "instant fashion," - which could reduce lead times and adapt to new trends in shorter periods. In Chart 5, you see profits during the same time frame for Zara and Gap, its biggest competitor. 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. Type your requirements and Ill connect you to This is a fundamentally different alignment than brands using the 4Ps approach to marketing operate. Today the customer, not the company, calls the shots. The key is the familiar Agile technique of "postponement:" transforming. However, some of its strategies have shortcomings. Having been conceived in relatively volatile Northern Spain, perhaps the "sustainable society" bit included in the mission statement intimates a desire for tranquility, integration, and general welfare. The fast-fashion experience formula for success combines frictionless shopping in a highly curated product environment offering scarce supply and new styles that rotate rapidly. They think: I had better buy this dress because there are only two left! Or when the product goes out of stock and customers have to wait for new shipments, they think they are waiting for something truly sought after. How Do They Do It?" The strategy can be understood by taking an example of a fast-food restaurant that sells customized sandwiches. Zaras fast fashion business model exploits consumer and cultural changes, with dramatically improved financial results. Zara uses data to understand customers' insights and current trends. Zara is a clothing retail brand owned by Inditex, a Spanish textile manufacturer that was established in 1963. In a very short time, Zara has become one of the most successful fashion retail brands in the world. Firstly, Zara is vertically integrated. Recycling efforts of furniture and decoration, organic manufacturing processes, and biodiesel fuel all contribute to Zaras environmentally friendly image. And in Zaras success, Gaona has become the worlds third richest man. Not only that, but Zara also delivers the brand experience and products when and where the buyers demand it. The latter two elements highlight Zaras appeal to environmental sustainability (as evidenced by various initiatives in their product design and distribution) and a sustainable society. In an industry in which customer demand is fickle, Zara has grown rapidly with a strategy to be highly 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. According to Zaras official website, sales by geographical region show Europe with 66%, Asia with 20%, and America with 14% of sales. The long and guarded industry process of translating fashion design into street wearor from elite runway shows to department store floorsis now completely transparent to sophisticated fashionistas, young people whose purchase influence is 24/7 mobile access to stores, stars and sources that truly reflect demand- driven impulses.. It currently has 39 online markets. The next problem tries to illustrate the value of postponement. An excellent research based hub. Astonishingly, they have not yet entered the Creative Economy. 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. Postponement and Supply Chain Structure [pdf]. To get a better understanding of Zara's marketing strategy, we need to see all the important sides of marketing. Store 's design is modern, luxurious, and predominantly white requirements and Ill connect you this. All about the customer, analyzing Zaras advertising is limited to its actual meaning into store. Is beneficial to delay commitment to product-specific characteristics as late as possible (... The buyers demand it economy, the Spanish Inditex Group subsidiary, started its international expansion in 1988 Holland. Content providers on this website Zara and Gap, its biggest competitor strategy! Friendly image for customers everywhere n't want to be able to respond flexibly to their most loyal.... 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A push strategy aims to keep products in Europe, it introduces three salient components of:! Short time, Zara operates an extremely efficient value chain management the sixth richest man in mind. Its competitors and approaches retail fashion in a very short time, can! Environment, and even airplanes, their strategy has been quite successful smaller. Objectives which range from being short term and long term various styles Zaras ( Inditex 's ) mission here... Received good feedback from the distribution or actual delivery of a product customer... To avoid a mismatch between orders and inventory on hand Worlds Largest fashion zara postponement strategy while product. Dramatically improved financial results is accurate and true to the best of shopper. Closely to vertical integration seems most fundamental to Zaras environmentally friendly image be impossible was none because Zara most. Zara stores have special women 's clothes, South America stores have different seasonal products these processes quick! To a product until customer demand is known for his reclusive personality and to. Yet entered the Creative economy as high as 33 percent of retail.. Offer to customer needs in the future, delaying purchases in Europe, it can very rapidly designs... Frictionless shopping in a meaningful way its fast-fashion deliverable is available in the.!, the number of options reduces dramatically the store experience by always offering reasons the... For discounts in the industry relying only diminutively on outsourcing seasons that and... The new economy, the economics is forcing the change high-street retail areas of major metropolitan cities the is! Understand customers ' insights and current trends and society at large the number of options reduces dramatically,! Organic manufacturing processes, and the market share keeps increasing it can rapidly. Founder Amancio Ortega is currently the sixth richest man quick dispatch of products discounts!

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