Comparison of H&M and Inditex financial ratios
H&M is quite close to Inditex in terms of financial performance and market competition. From the case, Inditex has a lower operating expense than H&M even though their profit margins are almost the same. This implies that Inditex has reduced its expenses to the minimum to boost the overall net income (Ghemawat and Nueno 8).
Zara business model
The independent operating structure of the company is crucial in Zara’s business model. Most of its products are low in prices compared to those of the competitors. However, retail prices are higher than the selling price after manufacturing. The latter assists the company in distributing its products cheaply to suppliers.
The link between competition and competitive advantage is shown in the following diagram:
Disadvantages of the Zara model
There are quite a several factors that might fail Zara. Firstly, the low pricing strategy in its market segmentation plan may not be productive in some markets with high operating costs. The low price products can mostly do well in weak economies even though the company does not have production units in such locations. Secondly, the lack of adequate central distribution units may lead to the failure of the company when it comes to reaching the targeted markets with the desired products. Lastly, sticking to traditional marketing platforms or lack of marketing at all is an ingredient for the failure of the company.
One of the strategies that Zara has employed to reach a wider market is market segmentation. To fulfill the purchasing abilities of different consumers in the market, the company has segmented the market in terms of the cost of its clothing lines and footwear. For example, most of its clothing products are relatively cheap compared to those of the competitors in the same markets. Therefore, the market is segmented in such a way that most consumers can afford its products. Only a few lines of products are priced higher but are targeted towards specific consumers who may have varied tastes and preferences. Therefore, this strategy has gone global since both rich and poor economies can be supplied with Zara’s clothing and footwear products.
Zara’s growth perspective
Zara must devise a strategy that will ensure uninterrupted growth for a considerable length of time. For example, the company should seek to expand into new markets that are yet to be tapped. This will limit stiff competition in markets that are already saturated with other rivals. Moreover, difficult and breach markets should be approached differently. For instance, franchises, joint ventures, and mergers can be considered by the company as strategies for growth in such markets. If management decides continual growth is the best strategy, needs to look further into joint ventures and franchises in difficult to breach markets.
It is also vital to mention that loyalty programs can be used by Zara as part and parcel of enhancing customer loyalty and retention to their products. Needless to say, the cost incurred in marketing campaigns of its products should be reduced to the minimum. This will assist in boosting revenue generated from the sale of the company’s products. An online marketing strategy can be the best alternative bearing in mind that it is cheaper than using physical advertising tools (Maguire 74).
As it stands now, the company is not employing any real advertising. Even though this approach has been productive for a long time, it is vital to mention that the markets are highly dynamic and have so far changed significantly. Therefore, a strong footing can be grown in external markets by making use of the modern advertising outlets (social media) instead of traditional forms of advertisements that can only reach a small number of targeted customers.
Ghemawat, Pankaj, and Jose, Luis Nueno. “ZARA: Fast Fashion”. Harvard Business School 9.703 (2006):1-35. Print.
Maguire, Marion. United Colors of Benetton: a company of colors and controversies. München: Grin-Verl., 2003. Print.