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Group 8 Ju Jiang Jiani (Luna) Lu Ziyan (Annie) Wang Heng (Lychee) Yu Marketing Management Dr. Chritian Kim Marketing Plan 10/17/2019 2 Executive Summary Fast fashion, as a kind of clothing category, attracts many young consumers with its fashionable design, rapid market response, various styles, and...

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Group 8 Ju Jiang Jiani (Luna) Lu Ziyan (Annie) Wang Heng (Lychee) Yu

Marketing Management Dr. Chritian Kim Marketing Plan 10/17/2019

2 Executive Summary Fast fashion, as a kind of clothing category, attracts many young consumers with its fashionable design, rapid market response, various styles, and relatively low price. According to the latest research, the fast fashion industry has grown by 21% in the past three years. With the rapid development of the fast fashion industry, companies in this industry are confronting fierce competition over market share. With the enhancement of information technology, involving the rise of social media and e-commerce, the key to maintaining competitiveness has turned to how to effectively use digital marketing and increase sales while ensuring the sales of physical stores. Zara, the leading company in the fast fashion industry, is losing its market share to small onlineonly retailers who can offer similar products with cheaper prices and lower costs. In our primary research, industry factors, industry forecasts, and the SWOT analysis of Zara are emphasized. In order to have an overall understanding of the market, our team also distributed a short questionnaire regarding Zara’s consumer behavior and collected data from 91 respondences (Appendix 1), from which a lot of customer insights are generated. According to the SWOT analysis and our survey report, Zara certainly has many advantages against its competitors in the fast-fashion industry, referring to the supply chain, the customer-first value, the “anti-marketing” approach, convenient offline shopping experience, etc. Therefore, ZARA should make full advantage of its physical stores by applying marketing strategies that are more in line with the current market. Several shortcomings, however, can be identified as well. In order to increase Zara’s competitiveness in this ever-changing market, our team aims to create marketing strategies by maximizing Zara’s strengths and minimizing its weaknesses. For the objectives of maintaining in-store sales volume, increasing online (Zara.com and Zara App) sales volume, and expanding market to the next generation, strategies and the corresponding solutions in terms of elevating instore shopping experiences, Corporation Social Responsibility, digital marketing, etc. will be explained in the marketing plan.

3 Table of Content 1. Executive Summary…………………..………………………....………………………..2 2. Project Description and Industry Definition…………….…….……..…………………...4 3. Situation Analysis………………………………………………………………....……...5 a. Industry Factor …………………………………………………....……………...5 b. Competitive Set: SWOT Analysis………………………………………………..6 c. Industry Forecast………………………………………………………………...11 4. Marketing Strategy………………………………………………………………..….….13 a. Market Research Analysis……………………………………………………….13 b. STP Analysis…………………………………………………………………….17 c. Marketing Objectives & Strategy……………………………………………….19 5. Marketing Mix…………………………..………………………………………………21 6. References………………………………………………………………………………26 7. Appendix………………………………………………………………………………..27

4 Project Description and Industry Definition Zara is a Spanish apparel retailer specializes in fast fashion with women’s, men’s, and children’s clothing. Zara features low-priced clothing with similar styles to popular products from high-end brands. This assignment is a detailed market plan analysis of Zara fashion store includes situation analysis, marketing strategy and marketing mix. Zara is one of the most popular and reputed, efficient, market responding fashion designing and manufacturing firms in the fashion industry of the world. Zara brand is currently generating more than two-thirds of the total group sales by offering to its customers, a very high imitative fashion trend at a reduced price. In addition, Zara has a very quick and responsive supply chain that is able to renew its inventory every two weeks. Given its ability to re-design smartly, react to market changes quickly, and replace styles in a much shorter time, Zara has been an industry leader for years. However, as more rivals enter the fast fashion industry, Zara is losing its market share to small online-only retailers who can offer similar products with cheaper prices and lower costs. Therefore, ZARA should make full advantage of its physical stores by applying marketing strategies that are more in line with the current market. According to our primary research, our group plans to propose a marketing plan with solutions addressing problems of digital marketing and brand promotion. Key objectives including maintaining offline sales volume, increasing online sales volume, and expanding the market to the next generation will be drawn deeply into our marketing plan.

5 Situation Analysis Industry Factor While the fashion industry feels anxious about speed, fast fashion retailers have managed their way to win customers’ attention. Price is always one of the biggest concerns for customers. In the fast fashion industry, retailers try to bring down the price to make their products more appealing. Thus, the price competition among the fast-fashion industry is fierce. Customers have plenty of choices and they will compare the prices between the brands. Every company is not willing to lose the game in the starter line. As for the distribution channels, there are two main ways. The physical stores will be planned in prominent locations where passenger flow is large, and traffic is convenient. In addition, customers can also shop through online stores with the delivery service provided. Most of the fast-fashion online stores support free return policy. Exposures are never too much for the fast-fashion retailers. Traditional advertising strategies include sending direct mails and emails to registered customers and creating billboard advertisements for the latest new product. With the wide use of social media, advertising has taken on a new twist. Celebrity endorsement is adopted and they will use social media to tweet news feed advertisements. Exposure can exist everywhere in our daily life. Sales, collaboration with other brands and recycle discounts are very common promotional activities. Each activity will create a purchase impulse for customers. Promotion is a common method in the fast-fashion industry to stimulate consumption at a certain time. Among all four factors, distribution, advertising and promotion will be more influential in our marketing plan. The way of distribution is the direct factor that influences sales. Advertising is a vital factor related to the brand’s exposure, building an ideal brand image in front of the public. Moreover, the promotion method will be reconsidered to create customer satisfaction.

6 Competitive Set: SWOT Analysis Strength The strengths of Zara are what make it successful as one of the world’s most successful fashion retail brands. There are many factors that have contributed to the success of Zara but its key strengths, which play a strong role in it’s becoming a global fast-fashion powerhouse today are the following: the supply chain of Zara is one of the biggest competitive advantages to the brand as they develop strong distribution channels; Zara always put customers first and exchanges with customers for value; Zara uses “anti-marketing” approach, unlike the other brand, as a unique marketing strategy; the scarcity of certain SKUs makes customers think they are unique in buying Zara; Zara invests in the location and appeal of its store for physical convenient offline shopping experience. Efficient Supply Chain and Distribution Management The super-efficient supply chain of Zara is the number one strength. The vertical integrated supply chain with highly responsive action enables the shipping of new products to retail stores twice a week. After the design, all new clothing items will be processed through Spain distribution center after 10-15 days. New styles are then in customers’ hands according to their preferences with the latest trend. Where other retail stores take 21 days to even 2 months to get new designs in the store, Zara gets it done within 2 weeks. According to documentation, Zara distributes more than 60,000 items of clothing an hour. In addition, clothing items are delivered to stores within 48 hours in most cases. The supply chain successes the process for the following reasons: collection for trend information daily to create new lines and modify existing ones; standardization of product information and inventory management; outsource of predictable demand and standard designs to shorten the product life cycle; monitor changes of distribution in customer preferences. The efficiency of the supply chain is critical to ensure that this constant refreshment of store-level collections goes off smoothly. (Appendix 2) Consumer Co-creation Zara focuses on pulling people in rather than pushing people out as Zara makes its customer experience king. Zara is sensitive to customers’ needs by listening to customer comments, observing customers’ new style and desire, and then converting into unique Zara styles in a fast-

7 speed updated picture in the market. As Zara monitors and values customer feedback, it builds massive brand loyalty. The capitalization of Zara on the store experiences cultivates more loyal customers than other retailers. Exchanging dollars for product-selling is no longer helpful for a company to maintain business, it is crucial that Zara’s designers and customers are linked for exchanging values. Zara has cultivated unique advantages with its 4Es approach to marketing by focusing on experience, exchange, evangelism and every place strategy for the customer, rather than the old product, price, promotion and place concept focused on the brand. Low-Cost Depletion Zara produces lower quantities of its products through scarce supply. By reducing exposure to a single product and the quantity manufactured for a particular style, Zara is able to control its inventory at a reasonable level as well as its disposal cost. The risk is also lower for poor-sale products that have high-volume leftovers of disposal. Meanwhile, scarcity makes products more attractive as consumer behavior suggests that the lesser the availability, the more desirable an object becomes. It also eliminates the need for warehouses and helps reduce the impact of demand fluctuations. Accessibility of Location An average high-street store in Spain expects customers to visit thrice a year, but for Zara, the expectation is that customers should visit around 17 times in a year. And our survey suggests that 62.6% of our 91 response shops in Zara stores (Appendix 1). Location is key for Zara’s physical stores as a brand appeal stem. Zara invests in the location and appeal of its stores at identified high-street retail areas. The retail location strategy on downtown and high-level district with massive human traffic, where easy access ensures high customer traffic and brand exposure. Store window showcases are always grabbing and constantly changing for customer attention and freshness. “Anti-marketing” Approach Unlike any other fast-fashion industry competitors which have an average 3.5% of marketing spend, Zara only spends about 0.3% of sales on advertising, and rare marketing to speak of. There is also no spokesperson on any mainstream media to advertise Zara such as talk shows or radio. The scarcity of low stocking helps with exclusivity factors, and low brand exposure on

8 traditional media would make customers think they are a unique minority in a brand “underground” not commonly known. The brand strategy Zara uses is its location and store display instead of advertising. The anti-marketing approach then ensures customer loyalty in brand recognition of Zara a real successful brand. Weakness The main weakness we believe Zara need to be improved are as follows: Even though Zara is using location attractiveness as main advertising strategy instead of the traditional advertising method, there are some advantages of advertising that cannot be replaced. Brand communication is crucial in attracting new customers to the brand to support its growth. Without advertisements, Zara relies heavily on word of mouth or social media. Therefore, the lack of advertising and exposure is surely a shortcoming and it needs a market strategy to involve. Customer feedback about Zara’s fast-fashion clothes quality is piling up. Zara is professional at production and fabric selection for style, the quality performance is not maintained along with the style growth. It seems like Zara’s product is not sustainable and durable in wearing, especially the basic ones people would like to match with style frequently. Price is certainly not an advantage as the low cost-performance coming with inconsistent product quality. For Zara to effectively compete and maintain its strategic advantage, the focus needs to shift away from price but towards quality. Zara entered the e-commerce market much later than its competitors, as the king of offlineshopping experience leader. Different forms of market analysis strongly point towards a scenario wherein spends on mobile commerce will overtake desktop-based ecommerce in the next 3 years. On average, most brands get about 15-20% of their website traffic via mobile devices and this is growing rapidly. The data in Appendix 4 shows the net sale through the e-commerce of Zara in 2018, which is a relatively low occupy in total sale gross. Therefore, since Zara woke up late to the potential of mobile commerce, it needs to catch up fast with competitors. Also, ecommerce development can help with fixed costs in physical retail stores such as rental, utility and labor expenses.

9 Opportunity Use of digital marketing for exposure Zara’s videos on YouTube are also seeing very low viewership in comparison with its follower count, which is not ideal as videos are a powerful medium for brands in the fashion industry. This is a gap that Zara needs to plug immediately as the reach and impact of social media marketing gets stronger. As Zara’s target customer segments start using more social and digital platforms for communication and for sharing their lives, it is important for Zara to have a strong presence on such platforms. Keep up with the positioning, increase brand exposure, and use up social-media resources for advertising would be a great opportunity for Zara to grow. Appendix 5 and 6 suggest the power of digital media. Social Influencer and CSR Social influencers are making more and more influence unconsciously, such as Youtuber, Instgrammer, and KOL (Keep Opinion Leader). Seasonal sales volume boost occurs by a social influencer is frequent as their credibility is worshiped among their fans. H&M is using the strategy of CSR-Corporate Social Responsibility-for customer visiting to improve sales: customers could use old clothes to recycle in offline H&M stores for a 20% discount coupon. Big-data Analysis Big data analysis is a useful tool, which enables the company to analyze their business through the database. Zara used to gather customer feedback for progress, but now they could use the advantage of technology, which is the big-data analysis for business running. For example, Zara can gather data collection for the seasonal selling of offline stores to analyze consumer behavior and habits among different regions. Moreover, the data collection could also analyze what color, style, fabric, the price range is in trend nowadays. The data analysis and database collection can help with lower risk in production costs and increase sales.

10 Threats ● Transition to next-generation ownership ● Loyal customer generation aging ● More effective digital marketing of competitors ● Product quality of competitors in the fast-fashion industry ● New competitor entry

Figure 1: SWOT Analysis

11 Industry Forecast First and foremost, social media and online distribution will play a significant role in the fast fashion industry (Buzzo & Abreu, 2019; Gilliland, 2019). Social media has revolutionized the way people communicate, collaborate, consume, and innovate (Buzzo & Abreu, 2019). On the one hand, prominent media presence that results from good use of social media will help with increasing brand awareness. New media technologies reduce the time and distance costs of information flow, promoting the development of society into a new era of instantaneous communication and media coverage with growing speed and scope of information dissemination. The public is much more informed and aware of a greater abundance as well as a greater diversity of information than ever before. Customer is able to constantly get lifestyle and fashion-related content online. On the other hand, a social network can be used as a tool for companies to promote and communicate with the target customers (Buzzo & Abreu, 2019). Through interaction with consumers on social media, companies identify emerging trends and respond in production. During this process, consumers are regarded as co-creators which contributes to the sense of belonging to the brand. Also, with the improvement of the presence of fast fashion brands on social media and the improvement of functions of social media platforms, online distribution would be another trend in the fast fashion industry. According to research, with the new Checkout feature, Instagram made completing product purchases without the need to leave the app available (Gilliland, 2019). Moreover, influencer endorsement will work as a key marketing strategy in the industry. Although influencer marketing is now adopted by many industries, it is especially consistent with fast fashion due to, for example, Instagram's "See it, want it" feature (Gilliland, 2019). With short-term promotions and discounts, the consumer conversion rate for the channel will be high. Furthermore, companies in the fast fashion industry are expected to place more emphasis on the Corporation Social Responsibility, involving sustainability in production and distribution as well as working conditions for employees. According to the 2017 Hitwise research, among all the fast fashion-related searches, 19% refers to the ethics, environment, and sustainability. Lots of fast fashion brands are now proposing to increase the degree of transparency, driving initiatives on ethical and environmental issues (Gilliland, 2019). Sustainability in fashion refers to a series of new strategies to eliminate the negative impacts of large-scale garment production, including

12 production and distribution characteristics, such as the use of environmentally friendly and renewable materials, recycling programs, second-hand clothing sales, etc. The optimization of social attributes including job security, wage equality, and quality of working conditions are also taken into consideration (Buzzo & Abreu, 2019; Pookulangara & Shephard, 2013; Binet et al., 2019). According to the ThreadUp 2018 resale report, 33% of women bought second-hand goods in 2017. It is estimated that by 2020, the entire second-hand market will reach $41 billion, and re-usable clothes will account for 49% of this pie (Fast-Fashion’s future of sustainability, 2019). With the enhancement of consumers' environment-friendly consumption habits and the growing popularity of second-hand goods, fast fashion companies start to consider sustainability as part of their identities. Last but not least, the fast fashion industry is projected to be more personalized than before. The customization has already become a trend among the big fashion brands. Constant customer feedback will make customization possible, creating a personalized experience and increasing customer satisfaction (Fast-Fashion’s future of sustainability, 2019). With the ever-increasing demand for customization, personalization will become a characteristic of many companies in the fast fashion industry that closely keep up with the fashion trend.

13 Marketing Strategy Market Research Analysis Our team distributed a short questionnaire regarding Zara’s consumer behavi...