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Any innovation by a firm that alters the industry's competitive dynamics is referred to as a disruptive business model (Dado, 2015). In that scenario, a business with fewer resources than its rivals can successfully take on established companies. Disruptive enterprises start out by focusing on underserved market segments and start manufacturing at reduced prices. They then advance in the market and begin creating goods that clients need. By the time mainstream consumers begin utilizing the new company's services, disruption will have already been place. Disruption goes way beyond advertising, and it is mostly about risk taking and rejecting the way things are supposed to be. Disruptive brands tend to change the trajectory of customers' viewpoint and the market in general (Dado, 2015). They are often challenging other brands and get people engaged and immersed in the brand’s equity. Companies that have used disruptive business models provide a different set of values that unexpectedly overtake the existing markets.
Disruptive companies have several distinctive competencies, and such include the ability to react to trends and real-time market opportunities. The companies have a competitive advantage in that they can meet the needs of the clients by being flexible and manipulating technology to suit the market trend. In highly competitive industries, a disruptive business model is the most suitable approach to use so as to gain a competitive edge over competitors. Many successful brands have employed this model of disruption. These include Apple, Dell computers, Wal-Mart, Zara, among others (Dado, 2015; Doiron, 2015).
When Apple launched the iPhone in 2007, it was a disruptive innovation in the market of smartphones that targeted the same customers of the incumbents. The iPhone gained high growth rates, which were achieved through product improvement and introduction of a new business model. The iPhone challenged laptops by creating Internet access and it became the mainstream device by users for going online. Today, Apple is one of the largest tech companies, and this success is due to its disruptive innovation based products.
Another company that has been using the disruptive business model is Dell computers. The business model disruption that the company initiated is one of the best that has ever been achieved. The concept used by Dell included selling directly to customers, without involvement of distributors, and build to order concept. Build to order eliminates heavy costs while still providing the best of quality. Direct sales built strong relationships with customers, which in turn reduced the cost of sales. This was very disruptive, compared to other competitors like Compaq and it generated attractive profits for the company.
Due to changing buyer expectations and competition from companies like Zara, Gap has used a different strategy to apparent manufacturing and retail. Gap spends a lot on advertising its products and new lines of clothing. It introduces a new line of clothing twice in every fiscal year, during the spring and fall periods of buying. Aggressive manufacturing and showcasing a new line of clothing through fashion runways and expansion to other countries are some of the strategies used by Gap. The growing apparel markets in the East have attracted Gap, and the massive population has seen it expand to the East. It also uses the strategy of acquisition of new brands online or virtually, therefore diversifying its offerings and target audiences. Brand expansion and geographic expansion saw the company experience high growth rates. This growth has been attributed to the low costs of manufacturing offshore.
However, over the last few years, the company’s sales have remained stagnant, in spite of the aggressive advertising and issuing of discounts to its customers. In fact, the company has had to close some of its stores. The company's multi-approach strategies are deviating from previous approaches used by the company in the past. Such include the acquisition of new brands, which has diversified its target audiences and created a deviation. The company has also shifted its focus to online sales marketing through their websiteGap.com. These tactics have had varying success levels. It has become difficult for the company to balance all these approaches. Another approach used by Gap is comprehensive market research related to its overseas customers, especially the Japanese market. The company also visits potential geographic markets to assess customer traffic and consumer expectations.
Unlike its competitor Gap, Zara spends heavily on the layout of its stores and responding quickly and accurately to the ever-shifting demands (Unicorn 2016). The company invested in store location, design and layout that were as attractive to customers as possible, and spend very little on advertising, unlike its competitors. Every four to five years, the company changes the layout of its stores, altering the artworks and the display. Customers are thereby attracted to its stores, which are strategically placed. The company also takes as little time to market its products as possible. This is done through quick identification of customer needs and desires and translating these into designs needed by the customers. This is also achieved through having good design teams responsible for designs in specific categories. These teams, combined with a good line of authority, quickly assess customer needs and respond to them very fast.
Another approach used by Zara is efficiently manufacturing clothes in small batches (Doiron, 2015). By moving commodities into the market in small quantities, it was able to test the capability of the market with very little risk. By managing distribution centrally through a large distribution network, Zara can ship new inventory at least two times a week to every store in its network. This gives the company a competitive advantage over close competitors like Gap.
The target market for Zara is mainly young, price-conscious and highly sensitive to the recent trends. They segment their product lines by women (60 percent), men (25 percent) and children (15 percent) (Zara, 2016; Euromonitor International, 2015). Zara offers cutting edge fashion at affordable prices following fashion and identifying which styles are highly in demand and quickly getting the latest styles into the stores. The company can move from identifying a trend to having ready clothes for sale in at most thirty days. This is unlike other retailers, who take six to twelve months to have a new collection ready. Compared to the retail average of 3000 per year, Zara produces 12000 styles every year. The company, through its vertical integration strategy, has more flexibility and speed compared to other retailers. In its management organization, Zara has a flat hierarchy organization, with fewer levels of management and a centralized chain of command.
Both Zara and Gap have done equally very well in their marketing strategies in the past. However, Zara remains to be the best among the two. Unlike its competitor Gap, whose main approach is advertising, Zara spends heavily on the layout and design of its stores, therefore attracting customers (Euromonitor International, 2015). On the other hand, Gap invests heavily on marketing as it believes this is the key to attracting customers.
Zara prices its clothes on an average of 15 percent lower than its competitor Gap (Zara, 2015). Its main goal is to provide quality clothes at affordable prices, and this strategy attracts very many customers. Zara also spends very little on advertising, only advertising store openings. Advertising does not amount to significant material expenditure. This makes the company a low-cost producer. For Gap, when launching a new product in the market, advertising and selling goes hand in hand and spends heavily on advertising new lines of fashion clothing. The business model used by Gap has many associated risks as compared to Zara. This is because of introduction if new clothing lines by the company take a lot of time in planning, production, and marketing. Such include the risks of fashion misses.
Zara’s approach is also vertically integrated, unlike competitors like Gap. It manufactures the majority of its clothing lines, which makes the company reduce its costs. In response to the changing consumer demands and changes in taste, Zara ensures that the products are delivered into the market when they are high in demand (Zara, 2014). It produces the right apparel at the right time to the customers. For Gap, orders are shipped and stored in regional warehouses that are relatively close to their retail outlets and centrally shipped to stores. While Gap takes a full year to bring a collection into the market, Zara does this in as little as two weeks.
The approach used by Zara is a disruptive business model. The company solely focuses on designs and logistics and focuses on the layout of its stores. The company is known for ‘fast fashion’, by focusing on making a profit with many short run collections, which sell out mostly within a month. Its competitors, on the other hand, introduce just one to two collections per year, and this is what makes Zara business model disruptive. The company also sells at very low prices compared to its expensive counterparts.
Gap introduces two new collections every year, and the actual design work often takes a full year before launch. Other competitors in the industry also use this model by Gap by introducing collections twice a year. This approach helps to keep the costs controlled and reduced as much as possible. However, there are several problems associated with this approach. For instance, once a collection has been committed to, it is impossible to reverse since payment has already been made. If the company undersells, it has to cut down its prices, and it is also faced with unsold stocks. Zara avoids these problems by producing products in a short period and small quantities, as per the demand.
In Gap and other competitors in the fashion industry, design precedes manufacturing and other commercial activity, while the model of Zara configures the similar processes at the same time (Mallory, 2016). To achieve this, the culture of teamwork is maintained by all employees in the firm.
Why Zara’s Approach Is Disruptive to Other Competitors
Zara’s approach is disruptive since it has created a market within the existing market. It provides fashionable and customized clothes, targets the middle class, and its prices are 15% lower, yet it places its brands in the same category as other high-end brands, such as Gucci and Prada. Moreover, Zara’s distinctiveness is its timely product design, manufacture, launch, and marketing. Its fast approach to core activities is supported by its 11 factories located in strategic positions and commercials who give timely information regarding consumer’s tastes and expectations. The strategic and strong supply chain is expensive to acquire since it would require outsourcing to global manufacturer’s thus Gap and other competitors are not in a position to implement it into their business model. Gap also manufactures products in large quantities and stores them till the end of the season making it difficult to respond to changing needs in the market which would otherwise require a lot of planning.
What Business Is Zara In?
From the case analysis, it is evident that Zara operates in fashion apparel industry.
In conclusion, it is apparent that Zara is a well-recognized brand all over the world and this has been attributed to the approaches it uses, which have placed it at a competitive edge. The company has a strong identity globally, and many other fashion retail companies can borrow from Zara’s strategies. Other fashion retail industries should learn from Zara that the advantages obtained from advertisement can as well be gained by having a strategic location of the stores, design, and spectacular layout of the products. Another lesson to learn from the company is that planned shortages can induce more future demands and promotional activities can be substituted by product planning and development and suitable distribution network. Strategic product development and distribution lead to the global success of the firm. Zara, however, faces risks of failure due to its business model that is made up of high fixed inventories, low promotional activities, and a subsequent low working equity. As such, it’s essential for the firm to rethink its entire supply chain.
Dado. (2015). Hyper disruptive business models. Retrieved from www.digitaltransformationbook.com
Doiron, D. (2015). What business is Zara in? Harvard Business Review. Retrieved from https://hbr.org/product/what-business-is-zara-in/W15431-PDF-ENG
Euromonitor International, Initials. (2015). Zara France - clothing and footwear - France. Retrieved from http://libproxy.uncg.edu:4949/PORTAL/ResultsList.aspx
Mallory, S. (2016). Why Zara is crushing the retail industry. Retrieved from http://www.businessinsider.com/why-zara-is-crushing-the-retail-industry-2016-5
Unicorn Economy. (2016). Zara business model & understanding Zara business strategy. Retrieved from http://unicornomy.com/zara-business-model-business-strategy/
Zara. (2014). History of Zara. Retrieved from http://www.zara-clothing.net/history-of-zara
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