ZARA business model success factor

  1. What is ZARA’s success factor?

The major success factor in ZARA is as a result of its different market positioning as opposed to its competitors. ZARA has also employed an exceptional business model. This business model is one of the most thriving in the world.  ZARA is positioning is not only more fashionable in comparison to its competitors but unexpectedly utilizes a comparatively low price regime. ZARA produces approximately 50% its entire merchandise in-house. Other than employing its factory’s capacities to capitalize on their output, ZARA saves some of its factories capacity intentionally.

As opposed to taking advantage of the merits of economies of scale, the company manufactures and distributes its merchandise in small batches. ZARA does not rely on peripheral service providers. The company manages its own designing, distribution and logistical operations. This leads to its fundamental success factors namely; short lead time, decentralization of the decision making process, speedy conceptualization of new designs and speedy response to dynamic changes in customer preferences, leading to more fashionable styles and limited quantities (Azuma, 2006).

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  1. Advantages and disadvantages of the POS?

Zara has employed information technology to speed up the whole value chain process. ZARA has reaped several benefits through the use of information technology through its current POS. These advantages include the following points.

  1. Compilation of information concerning consumer needs. In its utilization of the POS, ZARA obtains daily information flows, from all its branches globally. This enables designers to scrutinize the database and prepare for dispatches. The flow of daily sales quantities through the POS facilitates the launching of new lines as well as modification of the current lines.
  2. Zara stores the product data with universal definitions, thus facilitating speedy and accurate preparation of designs, with precise manufacturing instructions.
  3. The POS facilitates inventory management and product information. Therefore, facilitating management of huge quantities of fabric as well as design specifications. Consequently, ZARA designs garments with its existing stocks, instead of ordering and waiting for the relevant material to arrive.
  4. The POS enhances ZARA’s distribution management.

However, there are several disadvantages in the utilization of POS at ZARA. These disadvantages consist of:

  1. The POS terminals at ZARA depend on a DOS operating system that is obsolete and not backed up. Despite the fact that the system has at all times been dependable, there are obvious risks in ongoing use of such a system in a fast-growing business such as ZARA.
  2. If you were the CIO, would you upgrade them?

Zara must consider upgrading the Point-of-Sale (POS) system that is currently DOS based to contemporary software such as the Intuit-HP Retail Solution. This solution is proven in the industry as a more sophisticated and durable than the system employed at ZARA. This contemporary software would grant ZARA with a strong solution in tacking its clientele, inventory management, and additional business insights (Nezu, 2001). In the event that, the current POS system is upgraded, it would be sustained briefly to ensure that the upgraded system runs smoothly. This should be done before completely shutting down the current POS system permanently.


What Could Be The Negative Consequence For Wal-Mart Of Constantly Making Its Suppliers Reduce Their Price?

The most significant negative consequence for Wal-Mart’s strategies of constantly forcing the suppliers reduce their prices is that it leads to price wars among the suppliers. Price wars usually generate economically destructive and psychologically devastating situations that negatively impact the industry’s profitability. Constant price cutting forces customers to persistently expect lower prices from the supplier. Thus, the customers who may be more patient would defer their procurements until the supplier offers another price cut. Secondly, a price-cutting supplier develops repute for being cheap, and this repute may cast distrust on the image and quality of related products under its umbrella brand as well as on the quality of upcoming products. Thirdly, price reductions bear implications for other market players, whose interests may be upset by the lower prices (Zellner, 2005).

Is This Sustainable?

Wal-Mart ought to realize that the pricing does not offer a sustainable competitive advantage. It is proven that prices may change almost instantaneously. Competitors in the market can also change their prices as fast as Wal-Mart possibly can. In the event that a company finds an optimal price, the competitors will replicate it immediately, and any competitive advantage that the company may have accomplished with pricing becomes unsustainable. This means that, if the company adopts low price strategy, then the business should continually focus on controlling and lowering costs. The consequences thereof would be that the business attracts price buyers. Such customers are fundamentally disloyal, since they are seeking the lowest price.

Wal-Mart’s constant insistence for lower prices from its suppliers caused Kraft Foods, one of its suppliers to close down 39 plants, lay off 13,500 employees, and to get rid of 25% of its products. The reason being that Kraft was incapable of competing with its competitors and alleged the costs of production had escalated due to costs of raw materials and rising costs of energy (Azuma, 2006).

Do You Think That In Europe Such a Strategy Would Be Successful?

Wal-Mart’s strategy of constantly making its suppliers reduce their price may face great resistance in Europe. This was evident in its entry into Germany. The company faced complexities in dealing with European suppliers. This is because Wal-Mart did not have the requisite bargaining power to procure goods from European suppliers at the low costs it anticipated. Most European countries have restricted store hours, and tough price regulations that prohibit retailers such as Wal-Mart to sell below stipulated costs. European countries also have rigorous zoning requirements that safeguard their traditional retailers. Labor unions in the European countries are more powerful than their counterparts in the US. Wal-Mart rivals in Europe have developed dealings with the labor unions and suppliers. This means that, its competitors in Europe have already implemented pre-emptive action as well as the requisite infrastructure to forestall Wal-Mart from being a significant competitor in Europe (Zellner, 2005).







Azuma, N. (2006). Fashion in the glo­balized world & the role of virtual ne­tworks in intrinsic        fashion design. Fashion Marketing & Management Journal, 7 (2), 413-418.

Nezu, R. (2005). E-Commerce: A Revolution with Power.  World Development, 29 (1), 25-32.

Zellner, W. (2005). Is Wal-Mart Too Powerful? Business Week, 3852, 100.

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