Zara’s secret to success retail – its pricing strategy

Madonna hold a concert in Barcelona on June 21th 2001. People found a new fashion clothes in the local Zara store after three days, which is the same as the clothes in Madonna’s concert. Its price is affordable to most common customers. The clothes are on fire soon. The concept of Zara is to offer its product with fashion design and provides products at reasonable price (D´Andrea & Arnold, 2003).

1

Developing a strong business model is important. Zara is well-known as its high-fashion, low-cost business model. 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).

Factors affect pricing decisions

Four biggest fashion companies are all fast-fashion companies, including Topshop, Zara, Uniqlo and H&M. These 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.

2

Two different types of pricing strategies

It is a little crazy to say that luxury fashion brands need pay attention to the increasingly activities of Zara. Most luxury fashion brands adopt high pricing strategies. They aim to provide high-quality products for high-income groups. We understand that being expensive is a significant marketing strategy to build a luxury brand. However, 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 (Ghemawar&Nueno,2003). 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.

In consideration of optimizing development and training costs, the current pricing strategy is suitable for Zara. It 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 is forced to increase prices in response to increased materials and labor wages (News,2013).

More expensive clothes and less exciting design have bad influence on business model. Although this fast fashion industry dominated the clothing market, they will face some environmental impact of the industry.

I wonder: Would you mind paying more at fast-fashion clothes, such as Zara and H&M? Would like to you stop shopping at Zara?

In a word, Zara is an excellent clothing brand worth considering because of its reasonable price. Increased cost will be a challenge for Zara. I think keeping reasonable prices may be a good strategy for development.

 

 

 Reference

D´Andrea, G. and Arnold, D. (2003), Zara, Harvard Business School Press.

Ghemawar, P. and Nueno, J.L. (2003), Zara: Fast Fashion, Harvard Business School Press. Case No. 703-497.

News. (2013), Will Zara Be Able To Keep Clothes Cheap as Labor Costs Rise from  http://www.racked.com/2013/3/4/7684835/some-fastfashion-companies-will-survive-increased-labor-prices-but

News.(2016),Zara’s Business Model, Information and Communication Technologies, and Competitive Analysis from http://www.123helpme.com/view.asp?id=97642

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s