MARKETING & OPERATIONS MANAGEMENT - Zara e-commerce project
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Zara e-commerce project
Marketing & Operations Management
DERBYSHIRE BUSINESS SCHOOL
MARKETING & OPERATIONS MANAGEMENT
Zara e-commerce project
Name: Cyril BAZIN
Module leader: Richard Hucker
Marking Tutors: Richard Hucker, Simon Dupernex
Course title: MA Management
Year: 2005/2006
Word count (without abstract and references): 3993 words.Zara e-commerce project
Marketing & Operations Management
Abstract
The following piece of work concerns a Zara e-commerce project aiming to reach
the necessary growth for its long-term expansion plan.
Zara aims to expand internationally (US and Asia) and the mean of e-commerce
provides a real opportunity to undergo it quickly and “easily”.
As the brand awareness is not important out of Europe and due to the inexperience
of Zara towards e-tailing, this piece of work qualifies Europe, and especially the UK
and France, as the best short mid-term strategy to tackle concerning its aim.
Also, it evaluates the advantages and disadvantages to implement such a project
and analyses it providing statements of the implications both in terms of operations
and marketing.
At last, those implications will be the object of recommendations so as to meet the
Zara’s expectations which are mainly to preserve it marketing and operations
management efficient concept through the e-tailing.
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Table of content
1) Zara e-tailing project ................................................................................................ 3
1.1) E-tailing implementation location .............................................................................. 3
1.1.1) Benefits to launch it in Europe ............................................................................................. 4
1.1.2) Especially in France and the UK .......................................................................................... 4
2) Mission statement ..................................................................................................... 5
2.1) Benefits of e-tailing project in the UK and France ................................................... 5
2.2) Operations implications, issues and recommendations ............................................ 6
2.2.1) Upstream competencies ........................................................................................................ 7
2.2.2) Downstream competencies ................................................................................................... 8
2.2.3) Structural competencies ...................................................................................................... 10
2.2.4) Delivery and returns policy................................................................................................. 10
2.3) Marketing implications, issues and recommendations ........................................... 11
2.3.1) Zara Website marketing mix............................................................................................... 11
2.3.3) Online experience ............................................................................................................... 13
2.3.4) Consumer perception .......................................................................................................... 14
3) Conclusion .............................................................................................................. 14
Appendices ................................................................................................................... 15
Appendix 1: Market data ................................................................................................. 15
Europe ........................................................................................................................................... 15
UK................................................................................................................................................. 16
France............................................................................................................................................ 16
Appendix 2 ......................................................................................................................... 16
The e-commerce value chain ........................................................................................................ 16
Appendix 3 ......................................................................................................................... 17
Operations network ....................................................................................................................... 17
References ................................................................................................................... 18
Books .................................................................................................................................. 18
Articles ............................................................................................................................... 19
Websites ............................................................................................................................. 20
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1) Zara e-tailing project
According to Zara, the only restraining factor to its expansion is the availability of
suitable real estate. Also Keith Mortimer (cited in Hill, 2005, case study), a European
retail analyst, reflects that Zara will sell clothes on the Internet so as to avoid the
finding of new store sites issue.
To expand a business means going to market and sell where it does not already or
less than somewhere else. Thus, the Zara’s aim is to especially expand in the
Americans (USA: 8 shops; South America: 67 shops) and Asian markets (7 shops)
where its presence is very little compared to the European market (419 shops).
Such an expansion could be helped by the mean of the e-commerce also termed e-
tailing. The e-commerce refers to selling goods to customers using the Internet
(Chaffey, 2004). This Business to Customer (B2C) concept allows to sell directly to
the customer while cutting out the mediator and presents many benefits including
virtual geographic expansion. Also, the e-tailing option represents an “easy” and
quick mean to reach any market and customers all over the world, provided that of
course those latter have access to the Internet (Kotzab & Madlberger, 2001).
Therefore, the e-tailing could be the solution to market Americas and Asia.
1.1) E-tailing implementation location
Because Zara does not have a vast number of outlets in the Americas and in Asia,
the Zara brand is not very known. Also, consumers are more likely to buy online from
brands they are familiar with. According to Blackwell (2001), the online purchase
intention represents “what we think we will buy”. And this purchase intention is,
among others, influenced by the brand familiarity. Brand familiarity is composed by
the number of brand experiences that have been accrued by the consumer, and it
includes exposure to the brand in a store, and purchase or usage of the brand (Park &
Stoel, 2005).
Also to envisage an expansion short and mid-term in those seems to be high risked
(lack of brand awareness) without a good certainty of potential opportunity for Zara.
Also, Zara’s current vertically integrated business model may not have the capacity to
support such an operation. In other words, this would have many implications for a
risked decision.
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Thus Zara should first realize if it has a real opportunity of success in these
markets in the long-term through market researches and if so develop a more sound
presence by the e-tailing mean.
Therefore the author advocates to experience e-commerce in Europe and
specifically in the UK and in France. The homeland country Spain is not chosen as
Zara’s presence is very important (200 shops), the consumers are used to buy Zara
products in physical shops and as Keith Mortimer states, Spanish consumers are
reluctant to buy online.
1.1.1) Benefits to launch it in Europe
Starting the site in Europe is beneficial because it is local to the companies’
headquarters. The company could maintain the service through its existing
manufacturing in Spain which could be an issue aiming to do it else where in the
world (US or Asia). Zara could expand its existing infrastructure through vertical
integration.
Also, since 2000, the EU “promotes the development of e-commerce as it is a key
factor to make the European Union the most competitive and dynamic knowledge-
based economy in the world” (europa website). In that purpose, a directive removed
obstacles to cross-border online services in the EU and provides legal certainty to
business and citizens.
Thus, the development of the Zara’s e-commerce will not be hindered by
government restrictions, regulations. Moreover the e-commerce situation market in
Europe has grown up (see appendix1) since 2003 (70,2 million of buyers) to 2005
(98,9 milion of buyers) and with forecasts for 2008 with 126 million online buyers.
This e-tailing project has two perspectives. One is short and mid-term, the other
one is long-term.
Short and mid-term, Zara will make profit and develop in Europe an awareness
towards the e-tailing by getting experience.
Long-term and from this acquired experience, to prepare at best the expansion into
the US and Asian markets.
1.1.2) Especially in France and the UK
The choice to do it in France and the UK is based on two of their different
characteristics. France is the European country where Zara is the most present (71
shops) after Spain. Also, the e-commerce market is in France growing up as in 2005,
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more than the half of the Internet user population (54%) bought online compared to
just 9% in 2003.
The UK is the biggest e-commerce market in Europe with 71% of online buyers
(22 millions) of the UK Internet user population. It leads the way in terms of online
distribution market and so in the forecasts.
(“Le journal du net”, see appendix1 for all the information and their sources).
Furthermore in Europe, comparable brands like American’s Gap and Sweden’s
H&M do not sell their products online which is not the case for example in the USA
with “Gap.com”. It would not be the first clothes brand to e-market as brand like
Mango is already doing it but Zara would develop a certain advantage over its direct
competitors (Gap, H&M) in Europe.
Besides getting the experience, Zara will determine which factor between the brand
awareness (France) and the importance of online purchases (UK) is the more likely to
influence the online sales in Zara case. This will provide a global online consumption
tendency Zara will consider to expand despite of culture, values, politic, economic
factors have to be considered.
2) Mission statement
Long-term aim of Zara is the expansion over the US and Asia markets. Thus, the e-
commerce project’s objectives should fit with Zara’s business ones (Travis, 2003).
Travis (2003) stated it is important to wonder what are the short-term and long-
term goals of the project.
Short and mid-term goals are to get experience, to understand all the implications
of e-tailing, give time for deep market researches in the US and Asia.
Long-term goal is the geographic expansion.
This mission statement will give an understanding, analyse, application and
synthesis of this European (France and UK) e-tailing project. Therefore, the first step
is to determine the benefits Zara and its customers will gain from it.
2.1) Benefits of e-tailing project in the UK and France
For Zara, position in both France and the UK will definitely be strengthened
generating new customers from the online market and so making further profits.
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Also, it will allow to collect data on new and old customers. The CRM will be
enhanced allowing to understand the customer online behaviour, and get a better
awareness of customer perception.
Cost will be saved by non investment in new retail shops and by an improvement
of value chain integration (Fraser et al., 2000). Indeed, e-commerce reduces
transaction costs, facilitates just-in-time delivery, and improves information gathering
and processing (Da Silveira, Feb 2003).
For the customers, their benefits will be what they want to be. In other terms the
website and the experience the customers will get from it have to reflect their
expectations that is to say the gain of time, the practicality and the comfort the online
purchase provides (JDN, 2003). The price and choice importance motivations are
coming after those.
Also, they will be able to buy Zara 24 hours per day.
But such a project has got many implications and could met issues:
- operations point of view: logistic and products delivery, range of products
available on the website, their duration on it, location of operation, returns etc.
- marketing point of view: advertising, segmentation, pricing, consumer behaviour
and perception etc.
2.2) Operations implications, issues and recommendations
Zara’s business model is interesting as it is vertically integrated from the products
design to the manufacturing process (in-house manufacturing plant). This allows Zara
to optimise the just-in-time working with almost no stock (case study).
Thus the main issue is how Zara incorporates mail ordering into the current just-in-
time framework. Internet users will want to purchase garments instantly and receive
them in a short space of time. This could involve that Zara will have to hold a certain
amount of stock levels in order to cater for their needs which would totally go against
the companies’ successful policy of turning over stock constantly.
In such a project different competencies are required which could be sorted into
three categories: upstream competencies, downstream competencies and structural
competencies.
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2.2.1) Upstream competencies
These include inventory management and database management.
Inventory management
Hill (2005) states inventory helps in the design of delivery systems in meeting
short customer lead times. Given that the delivery to final customers process will
represent the main new characteristic in the Zara business, the inventory point of view
is important.
In the project’s case, it will concern the process-related inventory (Hill, 2005) of
the finished goods that is to say the products that the website will offer. The issue will
be to take this inventory down to stay in line with the just-in-time framework of Zara.
A simple solution would be to decide to offer a very limited range of products like
just accessories, or just woman clothes or yet selected products so as to avoid
important stocks and so to limit inventory management. But Zara should not choose
this option as product availability online is a major competitive advantage over brick
shops. Also, online shoppers would not be more inclined to search for products in
competing sites (even if online competition is for the moment quite poor).
Thus it implies for Zara to build a broad online catalogue reflecting what physical
shops offer, increasing inventory levels (Da Silveira, 2003).
To sum up, Zara should offer a wide range of products in staying in its just-in-time
framework. Zara has to limit its stocks but not to limit what online customers can buy
in terms of products.
Thus, in the purpose to control its stocks and inventory levels but also to control
the demand level, the author advocates that Zara has to offer an online limited number
of garments. This will solve the inventory and stocks of the online products issue.
Also, this quantity available on the site question will be decided by the existing team
at the head office in Spain.
Moreover, this measure will have a real marketing impact which will be discuss
later.
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Database management
Zara will have to develop databases for products and customers.
The product catalogue will be held by the product database comprising product
names, description, price, product availability, delivery time and customer reviews.
The customer database will hold accounts with addresses, payment information,
order history, aiming at improving service, increasing personalization and reducing
transaction costs (Da Silveira, 2003). This would definitely reduce customer ordering
time thanks to the information possessed in the database.
However, this implies to update databases and to find ways to exploit that
information for commercial benefit. To hire database experts and develop IT seem to
be the solution. Good IT resources will allow the experts maintain the database, to
analyse customer behaviour and perception, and provide recommendation about
improvement concerning the online business (on the website; i.e. customisation of
pages, promotions; or delivery network etc).
2.2.2) Downstream competencies
This section deals with the “last steps” of the e-tailing. That is to say the
transactions between Zara and the customers. From the connexion on the site followed
by the handling of the orders and finished by the product delivery.
These concern the two middle step of the commerce value chain (see appendix2).
Online access
This part concerns the website itself. That is important as it represents what the
customer is going to deal with when he has the online intention to purchase. This is
the “virtual equivalent to location in traditional operations” (Da Silveira, 2003).
The issue is to attract the most of customers (from the novice online shopper to the
experienced one) and finally to spur customers on buying. Therefore, effort has to be
considered on the website design including ease of access and browsing (e.g. clear
menus and one-click links).
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As price reductions is not in Zara’s habit, main incentive to increase sale is about
the product presentation on the site. Indeed, the product presentation style will require
important attention (developed in the website design section).
Order handling
The question is where the mail orders are going to, and where the delivery process
to the customer is coming from. Zara could gather all the orders to the headquarter in
Spain and then through an in-house transportation network delivery the product. But
this is unfeasible given the distance from the headquarter to the potential customers.
Thus the author advocates Zara to develop a network in both UK and France
composed of a central office where the mail orders will go to and be gathered and
which then will dispatch them through a distribution centres network in key areas to
the concerned ones (see appendix3).
Concerning payment system, Zara has to assure security (payment) and privacy
(customer details). These constitute the main components of the customer trust
towards e-shopping (Ha, 2004). This will be assured by alliances with clearing
agencies like “netbanx” and “worldpay” (Collin, 1999), and also by clear accurate
information easily accessible on the website.
Product delivery
The aim of a physical distribution network is to “provide an effective service to the
customer” (Rushton et al., 1991) in terms of fastness and reliability of delivery. Thus
where and how many distribution centres are the questions.
As Hill (2005) emphasizes, location decision is important as Zara will live with
the consequences for a long time.
Zara will provide a number of centres on an area basis. Those centres will be
supplied by large trucks. It implies to choose location where road infrastructure is
sound (see further for delivery to customers).
Moreover, given that the production and so the availability of each product will be
planned, repeated distribution centres supplying will be avoid minimizing logistical
costs.
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2.2.3) Structural competencies
These are mainly concerned by the workforce and IT as they are going to support
the upstream and downstream competencies.
Workforce
An e-tailing project requires hiring and developing people that are creative,
technically competent, and knowledgeable (Da Silveira, 2003) to build the website.
Zara will hire such skilled people so as to develop the suitable website needed by
Zara in terms of design, and concerning the background of it (mail ordering system,
data handling system, secure payment system).
Concerning the design, the team who design the stores and probably the actual
website will guide this process in order to keeping on the Zara’s philosophy.
Information technology
As Franzak et al. (2001) state, “the online audience expects Web sites to protect
personal data, provide for secure payment, and maintain the privacy of online
communication”. The IT have to efficient so as to ensure:
- Security concerning mainly payments,
- Reliability referring to stability of connection and integrity of information
exchanged between commercial site and customer terminal.
Thus along the connection and the purchase, Zara has to present a visible policy
about security of the site and privacy of data.
2.2.4) Delivery and returns policy
Delivery
Delivery choice will be between a standard (between 4 to 7 business days) and an
express one (ship in one day in function of week-ends and holidays time).
For standard delivery, national mail companies will be choose (France: “La Poste”,
UK: “Royal Mail”).
The express delivery, requiring to pay more, will be undergone by an allied partner
such as FedEx which will definitely add value to Zara’s online business and enhance
customer’s trust.
Also, Free delivery could be considered as it represents a marketing tool.
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Returns or exchanges and refunds
As any “real” customers, “virtual” customers have the right to return or exchange
wrong, spoiled items. In that purpose, items could be returned to any Zara shop or by
mail to a sole address (one for France and one for the UK). This mail returns address
will be the address of the central office where mail orders are going to. Of course,
customers could also be refund directly from shops or by mail check or bank refund.
An essential element of successful e-commerce is building relationships with
consumers upon trust which is increased by the previous points as security, reliability
and integrity of delivery and return/exchange/refunds (Kolsaker&Payne, 2002).
2.3) Marketing implications, issues and recommendations
There are no benefits to have an online different offer with the shop one (Da
Silveira, 2003). Thus the online customer segmentation will remain the same.
The website is a new mean to sell for Zara. Also, it implies a specific marketing
mix strategy.
2.3.1) Zara Website marketing mix
Product
According to Siddiqui et al. (2003), consumers seek interactive websites. This
interactivity will emphasize on the product presentation aiming to overcome the lack
of “touchy feely” ability of shopping online which is the primary reason for not
purchasing clothes online (Elkin, 2001 cited by Siddiqui, et al., 2003).
This interactivity will include the ability to zoom on the garment, to see it in 3D, to
change the colour. The website will be furnished in pictures and video clips showing
celebrities, fashion shows who inspired new trends of Zara’s products. However, in
order to avoid long download time, there will be not too many or be gathered in a
special website’s area.
To develop the idea of virtual dressing, the possibility to build its own model
(height, weight, body shape, skin colour…) and to virtually dress it will be provided
to customers.
Of course, these virtual models will be able to be saved which imply the ability to
create a personal account.
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Price
The price will not be cheaper than in the shops and from that, the delivery adding
cost could be a brake for purchasing online. Also, the adhesion to a “Zaracard” will
provide free delivery. This card will be free by adhesion at shops or by mail on the
website. It will thus give free delivery for any amount, give a percentage off the first
online purchase and at the “birthday date” (i.e. 10%), give discounts after a certain
amount of online expenditure (i.e. £10 discount for £100), and on one specific day per
month give a percentage off online purchases.
Also, this card will allow to buy online on credit up to a fixed amount and within a
certain period of time.
This Zaracard action will develop customer loyalty.
Place and the website design
The website is the primary interface with customers and will be definitely a part of
its purchase experience on it. It has to be the more memorable possible
(Armstrong&Kotler, 2005). Thus website design has to be fancy and must reflect the
Zara’s image (Collin, S., 1999, Kolesar and Galbraith, 2000) led by the same design
philosophy for the stores.
The website needs three characteristics to be thought pleasurable and satisfying to
customers. It has to be fast, uncluttered, and easy-to-navigate (Park&Kim, 2003).
Also, it has to cater for different categories of online shoppers, from “the
inexperienced to the experienced and from the goal directed to the experiential user”
(Hoffman and Novak, 1997; Sally et al.,1999 cited by Siddiqui, et al., 2003). Clear
menus and one-click links have to be used.
Security, privacy, delivery and return/exchange/refund policies will be easily
accessible.
Promotion (first step of the commerce value chain)
The website is the mean of attracting new and especially the online customers.
Thus, it has to be promoted out but also on the Internet.
Outside
This type of advertising will not have to be very important as it aims especially to
make old customers aware about it. Thus, the evidence of it will be indicated on the
receipts, on Zara’s bags and on store windows.
On the Internet.
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Banners advertising will be a good way to promote the site as it ensures that Zara’s
banner will be given to other sites.
Also, Zara will have to use Internet magazines which carry a “what’s new” and
“best site” feature (Collin, 1999).
2.3.2) Customer Relationships Management (last step of the commerce value
chain)
As Armstrong (2005) states, CRM aims to maximize customer loyalty by
delivering more value and satisfaction to customers.
The website will provide an area for customer commentaries reflecting that,
commercial director Rosanna Padine explained (case study), “it is particularly good to
listen our customers as they know better than anyone what they want”. In the same
purpose a customer service will be developed through the central office or by mail
concerning any request.
It will help to assess customer perception.
2.3.3) Online experience
As said previously, it will be determined by the design, the interactivity but also by
the customer data management.
Customer will have the ability to create personal accounts.
These personal accounts will concern two types of data.
Customer “clothes data” (size, weight, shape…), and customer details (bank detail,
delivery address) got from the order time.
The aim is to minimize at most the time spend on the website during the future
purchases.
Illustration: The customer logs in its personal account (virtual model). The
customer just has to choose the item, see the effect on its 3D model and click on
purchase and it is done, as its clothes data (sizes) bank details and delivery address are
already known.
Of course, opportunity to choose the size anyway is let (case of gift) and
security/privacy policies would have been shown before validating the purchase, but
this would increase the personalisation and accelerate purchases process.
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The interactive features succeeding in compensating the lack of “touchy feely”
ability, coming along a very fast, comfortable, easy, pleasant, satisfying purchase time
experience, an amazing value will be added to online shopping and value = sale.
2.3.4) Consumer perception
Zara has developed a marketing and operations concept creating a “sense of
excitement” (case study) in customers minds and attracting new ones, a kind of
competition between customers towards its products.
Also, the website has to change solely the consumer buying mean and not its
behaviour.
Therefore, the limitation of online garments number (see previously) will
contribute to protect this excitement feeling and ensure that customers will often
check the website.
Thereby, “customers will still be stimulated to buy quickly, creating a velocity of
online shopping” (Johnston, case study).
The stock left information has to be emphasized and clearly shown on the website
to reach the expected impact. This implies to update stock levels information.
Following the shop items flow, the online garment “in trend” will stay one month.
Stocks information will be updated every 24 hours while the two first weeks and
every three days while the two last weeks.
In case of unsold stock after the month, items will become “out of trend” ones
which will be the object of auctions keeping the competition idea between customers.
Also, it will allow “late customers” to get these. A name will have to be chosen for
that kind of item.
3) Conclusion
Both operations and marketing will have its role in the Zara’s e-tailing project
success.
The initiation of this e-tailing business will strengthen its position in the two
countries comparing to its direct competitors (Gap and H&M) increasing its market
share.
The experience gained, a better awareness and understanding of the online
customers will definitely condition Zara’s expansion success in the long-term.
Enclosed, the e-tailing implementation plan.
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Appendices
Appendix 1: Market data
Europe
Europe : e-commerce growth
(BtoC market appraisal between 2003 et 2008)
Turnover (billion
Years Buyers (million) Penetration rate Average budget
£)
2003 70,2 44 % 283 pounds 19,8
2004 85,6 49 % 320 pounds 26,7
2005 98,9 53 % 350 pounds 34,6
2006 110,2 56 % 594 pounds 43,4
2007 119,2 58 % 448 pounds 53,5
2008 126,0 60 % 517 pounds 65,2
Source : Jupiter Research Renew on 11/12/2003
Europe : Percentages of online buyers among the Internet user population
(Second trimester 2005)
Number of online buyers
Countries Percentages of online buyers
(millions)
United Kingdom 71 % 22
Sweden 64 % 3
Germany 59 % 22
France 54 % 13
Netherlands 45 % 4
Italy 25 % 6
Spain 19 % 2
Source : Forrester Research, 2005, Internet
Renew on 09/02/2006
Retailer, décembre 2005
Western Europe Online distribution market in 2004
(Billion of pounds)
Growth between 2004
Countries 2004 Forecasts for 2008
et 2008
United Kingdom 15.06 89,4 39,5 %
Germany 14.86 69,8 31,3 %
France 7.9 59,0 49,1%
Italy 5.7 39,6 46,5 %
Spain 2.6 16,2 41,9 %
Source : eEito, IDC, eMarketer, march 2005 Renew on 02/08/2005
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UK
United Kingdom : Annual average of online expenditure among the Internet user
population
(pounds)
Years Average amount (pounds)
2004 936
2005 1.025
Source : Royail Mail Group, novembre 2005 Renew on 09/01/2006
France
France : Online purchase growth
Year 2003 2005
Internet user rate in France 37 % 54 %
Internet user rate who buy online 9% 51 %
Source : Le journal du net, december 2005 Renew on 01/02/2006
Appendix 2
The e-commerce value chain
Get and keep Turn interest into Manage orders Service customers
customer interest orders
Interact
Attrac Act React
t
Advertising Catalog Order capture Customer service
Marketing Sales Payment Order tracking
Fulfilement
Adapted by the author from
Treese&Stewart
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Appendix 3
Operations network
UK SPAIN FRANCE
Delivery Delivery
C through Distribution Manufacturing Distribution through C
U “La “La U
Poste”,
centres plants centres Poste”,
S FedEx FedEx S
T T
O Production O
decision
M M
E Production Production E
information information
R R
S Centre mail Head office Central mail S
Office office
Orders Sales Orders
information
Created by the author
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Websites
http://europa.eu.int/comm/internal_market/e-commerce/index_en.htm
http://www.journaldunet.com/cc/04_ecommerce/ecom_cyberconso_eu.shtml
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