ZARA PRICING STRATEGY:

Zara’s products are high on fashion and low on prices. Zara provides latest fashion at much
lower prices in all its international stores as compared to other competing international
brands. Zara follows low pricing strategy. It can afford to do that as it doesn’t spend
enormous amount of money on advertisements and raw material. It has an overall low cost
structure compared to its competitors. Zara’s prices are country specific. The tagging on their
products are done locally in each respective market. Zara sets market-based pricing strategy
which sets the target price consumer is willing to pay. The budget for production according to
the target price. This in turn fixes the profit margin they earn on every item. This gives an
insight on the marketing mix pricing strategy of Zara.
The brand uses various schemes as a way of sales promotion. Zara has low level of
discounting around the year and discount sales of 50% or more twice in a year, for which the
consumers eagerly wait.
The concept of Zara is to offer its product with fashion design and provides products at
reasonable price. Young people pursue fashion but don’t have enough money. José María
Castellano stated that “the fashion world is in constant flux and is driven not by supply but by
customer demand. Zara provides consumers what they want (News, 2013).

Fast fashion brands: fast-fashion brands have cheap labor, cheap materials and fast
production schedules. These factors enable Zara to adopt low pricing strategy. ZARA was
recognized as its first-class image, second-class production and third-rate price. It doesn’t
have expensive design, advertising and raw material costs. Zara’s prices are about 1/4 of
other brand’ prices. In Singapore, women’s coat usually sells at 19-26 dollars in Zara’s shop.
However, the same type products in other shop sale at 40-60 dollars.

Zara provides products at a reasonable price to target customers. Zara will win on price.
Zara’s prices are less expensive than luxury fashion brands’. Gucci, Chanel and Louis
Vuitton raise the price of products in recent years. Compared with these luxury fashion
brands, one of real competitive advantages for Zara is price. Zara’s pricing strategy not only
the value proposition is evident, but also is affordable to most customers. Luxury brands have
to admit Zara has a strong position in the global market.

Zara mainly uses value-based pricing approaches. The strategy focus on customers’
perceptions of value rather than company’s costs to set price. Its target customers want
fashion clothes but could not afford the high price of luxury fashion brands. Zara counts
broken code and unsalable products every day. These products will be sold at low price. In
addition, it often provides discounts at the end of season.

The reason for change their prices

Zara does not have a large design team. At the same time, it doesn’t have factories close to
target markets. In order to solve its problem, Zara uses low-cost Asian factories produce its
products. In the recent years, the cost of materials and labor in Asian countries increase.
ZARA CHANNEL STRATEGY:

Zara’s strategy involves adapting couture designs, manufacturing items, and distributing
products to stores a mere two to three weeks after they first appear on catwalks. In addition,
store managers and sales teams continuously monitor trends and customer preferences and
report them back to designers at headquarters.

Zara’s key operational theme is one of agility. Its product development, manufacturing, and
supply chain processes – some of which are a radical departure from the normal practices in
fast fashion – are expressly designed and implemented for agility.

Vertical integration

Zara designs as well as manufactures a majority of the apparel that customers buy in its
stores. This is very much in contrast to the traditional high-volume fast-fashion companies,
which outsource most of their manufacturing to contract manufacturers. This type of vertical
integration is key to quick new product introduction cycles.

In addition, most of the manufacturing operations seem to be cantered around primary

manufacturing facilities in Spain, with suppliers also setting up their operations close
to Zara’s manufacturing operations.

Quick new product introduction capability

Zara can get a new product from a mere sketch to a store in four to six weeks. That is
extraordinarily fast, and it requires a whole level of agility to respond that quickly to new
fashion trends. The agility of the entire design and supply chain process is central to
supporting Zara’s core strategy.

High product variability

Zara carries upwards of 11,000 distinct items per year compared to competitors that carry
2,000 to 4,000 in stores. Zara’s fashion-season-oriented products only make up a small part
of its business. Only 15% to 25% of a season’s line is designed ahead of the season. Up to
50% of its items are designed and manufactured in the middle of the season based on certain
styles and designs that become popular. Because of its quick new product introduction cycles,
Zara can take advantage of customers’ fleeting interest in new designs and styles.

Small lot manufacturing

Zara’s design, manufacturing, and supply chain capabilities allow it to produce in small lots.
The supply chain is designed to support just-in-time capabilities with small production lots
and frequent shipments to stores. This reduces instances of waste created by large lots
of designs that do not catch on and have to be sold for large discounts.

Low inventory

Zara seems to be extremely cognizant of the perils of inventory. It is one of the main
“wastes” in the Toyota Production System. Holding inventory is hazardous for fast fashion
because products that are in demand one day can be out of favor the next day. So holding
large amounts of inventory can lead to heavy discounting or outright waste. Zara’s agile
manufacturing and supply chain capabilities allow it to maintain low levels of inventory
across the supply chain and replenish as often as two times a week.

Excess capacity for agility

Zara also seems to keep excess capacity in its manufacturing operations to be able to respond
quickly to unexpected demand. This is in line with Toyota’s strategy for retaining some
excess capacity by running only two shifts in some manufacturing plants.

Zara also has extra capacity on hand to respond to demand as it develops and changes. For
example, it operates typically 4.5 days per week around the clock on full capacity, leaving
some flexibility for extra shifts and temporary labor to be added when needed.

Agility provides an edge

Zara’s new product development, manufacturing, and supply chain operations are a
significant departure from the dominant fast-fashion business models. The agile supply chain
strategy and the unique implementation, which has some similarity to the Toyota Production
System, is very likely the source of its industry-dominating competitive advantage.
ZARA SERVICE STRATEGY:

Zara has a very entrepreneurial culture, and employs lots of young talent who quickly climb
through the ranks of the company. Zara promotes approximately 90% of its store managers
from within and generally experiences low turnover. The brand has no fear in giving
responsibility to young people and the culture encourages risk-taking (as long as learning
happens) and fast implementation (the mantra of fashion).

Top management gives its store managers full liberty and control over their store’s operations
and performance with clearly set cost, profit and growth targets with a fixed and variable
compensation scheme. The variable component amounts to up to half of the total
compensation – making store level employees heavily incentive-driven.

In addition, once an employee is selected for promotion, his or her store develops a
comprehensive training program for that individual with the human resources department,
which is followed up by periodic supplemental training – reflecting Zara’s commitment to
talent development. The organizational structure is also flat with only a few managerial
layers.

Customers are the most important source of information for Zara, but like any other fashion
brand, Zara also employs trend analysts, customer insights experts, and retains some of the
best talents in the fashion world. The creative team of Zara comprises of over 200
professionals. They all embody and enact the corporate philosophy that the word
“impossible” does not exist in Zara.

Besides being customer centric, another important reason why Zara’s employee strategy is so
successful is the fact that it empowers its staff to make decisions based on data. Zara has no
chief designer. All its designers are given unparalleled independence in approving products
and campaigns, based on daily data feeds indicating which styles are popular.

Due to the unwavering focus on the customer, the entire business model is designed in such a
way that the pattern of needs for the finished goods dictate the terms of the production
process to follow, instead of having the raw materials determine the nature of the production
process – something that is very rare in multinational companies of similar scale. In sum, the
entire brand culture is extremely customer-centric, which has been and continues to be a
significant contributor to Zara’s success.