International Marketing

(MKT3130/32)

Seminar Tutor: Kinnari

Pancholi

Student Name: Iglika Karakusheva

Student Number: M00537208

Word count: 3256

Executive Summary
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The following report analyses important issues in international marketing strategy in the

context of Zara, a Spanish fashion retail chain of Inditex Group. The report studies Zara’s

international markets as well as assesses the risk elements involved, including the political,

economic, and socio-cultural factors. The learning outcomes also include evaluation and

assessment of Zara’s international marketing strategy and its international marketing

decisions and activities. The report will also delve on Zara’s entry strategy for foreign

markets.

The report will commence with a brief introduction about the term international marketing

and information about Zara’s internationalization. This will be followed by detailed answers

to questions in the case study.

This will include a discussion on the theory that best represents the company’s international

expansion strategy. It will be followed by an evaluation of the competitive strategy of Zara’s

closest rivals and an assessment of their future with regard to global retailing in the fashion

world. Next will be a discussion on the benefits and drawbacks of Zara’s (Inditex’s) multi-

brand store strategy. The subsequent section will review whether Zara has successfully

fought off the “risk of cannibalization” as a result of its multi brand strategy. The last section

of the report will weigh the pros and cons of Zara’s joint venture with Tata in India.

The report will conclude by drawing from the significant points discussed in each section.

Thus, the report will be a comprehensive representation of the Spanish retailer Zara’s

international marketing strategy.

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Table of Contents

Executive Summary...................................................................................................................2

Introduction................................................................................................................................4

1. Zara’s Internationalization Strategy.......................................................................................4

2. Evaluation of Competitive Strategies of World’s leading Retailers 560...............................6

3. Pros and Cons of Zara’s (Inditex’s) multi-brand store strategy.............................................8

4. Zara’s approach to minimize risk of “Cannibalization”......................................................10

5. Advantages and Disadvantages of Zara’s joint venture with Tata in India.........................12

Conclusion................................................................................................................................14

References……………………………………………………………………………………15

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Introduction

Globalization of the marketplace is a reality of 21 st century and consequently international

marketing field has developed enormously. As competition for international markets

intensifies, no company can escape increasing competition from foreign firms. International

marketing includes all the business activities that direct the flow of an organization’s

goods/services to consumers/users in more than one country[ CITATION Gha14 \l 2057 ].

Spanish retailer Zara has had considerable international success-reflected by its 2000 stores

located in leading cities across 88 countries[ CITATION Ind16 \l 2057 ]. Hence, Zara’s

international marketing strategy makes for an interesting case study for all international

retailers as well as management students and experts.

1. Zara’s Internationalization Strategy

Zara is a flagship brand of Inditex SA, a company owned by Amancio Ortega Goana. Inditex

is one of the world’s leading clothing retailers with a market capitalisation of around €65

billion, with Zara constituting approximately 80 percent of the organization’s

revenue[ CITATION Gro15 \l 2057 ]. Zara’s unique selling point (USP) is up-to-date

clothing at affordable rates. It has become a prime example of speed, agility, and innovation

in retailing world. Inditex’s internationalization strategy hinges on Zara as it is generally the

first brand to break ground in new countries, paving the way for the company’s other brands.

Internationalization is a complex process consisting of significant number of activities and

the internationalisation process of Zara can be explained through theories focusing on three

issues: motivation, market selection and entry options. According to Frazier & Summers,

2011, the motivation factor can be explained through push and pull theory. The push factors-

which encourage an organization to look for international opportunities-for Zara were

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domestic market maturity, change in Spanish consumer behaviour, and slow pace of

consumption growth[ CITATION Mat15 \l 2057 ]. The pull factors, which involve attractive

conditions in the host market, for Zara were Spain’s entry into the European Union, the

steady creation of regional market groups like EU, the ASEAN Free Trade Area etc.,

globalisation, the homogenisation of consumption pattern across markets, removal of barriers

to export, advent of information technology, and opening of developing countries for foreign

investment[ CITATION Bha11 \l 2057 ].

As far as market selection goes, there is a pattern visible in Zara’s internationalization. It can

be explained through the Uppasala model theory that explains how companies take gradual

steps to increase their activities in foreign markets. The underlying rationale of the theory is

that companies first gain experience from the domestic market before they foray into

international market[ CITATION Gha14 \l 2057 ]. Zara opened its first international store in

Portugal in 1988. At this stage which can be called “reluctance and trial” stage the company

followed an ethnocentric orientation. During the next stage that can be termed “cautious

expansion,” Zara expanded into international markets that had minimum cultural or

geographic distance from Spain. Between 1989 and 1996, it opened a store in world’s fashion

capital Paris and followed it with expansion in Belgium, Sweden, Mexico, Greece, Malta, and

Cyprus[ CITATION Lop09 \l 2057 ]. Confident after achieving success in these markets,

Zara adopted “aggressive expansion” strategy and opened stores in Israel, Middle East,

Britain, Argentina, Japan, Canada, Brazil, Costa Rica, Indonesia etc. The 21st century saw

Zara venturing into new countries including Australia, China, and India[ CITATION Mat15 \l

2057 ]. At the later phases Zara moved toward geocentric orientation by adopting local

solutions rather than merely replicating the home market.

Zara’s market entry strategy centres on hierarchical and intermediate modes[ CITATION

Lop09 \l 2057 ]. It depends on hierarchical mode (direct investment), which is the most

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expensive and high-risk mode of entry, for most European and south American markets as

they are characterized by high growth potential, low business risk, and relatively low socio-

cultural distance from Spain. Zara employed intermediate modes and entered into joint

ventures (Germany and India) and franchising (Kuwait, Andorra, Puerto Rica etc.) in high-

risk countries which were culturally distant, had small markets with low sales forecasts, and

where it expected to face administrative barriers. After selecting a market entry strategy, Zara

follows an expansion strategy pattern called “oil stain” where it starts by opening a flagship

store in a strategic area and gradually expands further.

2. Evaluation of Competitive Strategies of World’s leading

Retailers

Zara faces many competitors but in terms of size, tradition and business scope H&M and Gap

are its closest rivals. Zara’s competitive strategy centres on several key aspects. It is a

vertically integrated retailer and controls most of the steps on the supply chain. It has

developed a concept of “fast fashion” based on three pillars: short production and distribution

time; highly fashionable design, and affordable price. It helps Zara stay ahead of the trend

curve, enables it to design, produce, and distribute clothing within a very short time-frame,

and enables store managers to reorder stocks efficiently with short delivery times.

Zara vs. H&M

Swedish fashion retailer Hennes and Mauritz (H&M) is the highest valued fashion brand in

Europe, with a brand value of around €13 billion[ CITATION Mat15 \l 2057 ]. H&M has

3900 stores in 61 countries and its basic concept is “fashion and quality at the best price in a

sustainable way”[ CITATION HMH16 \l 2057 ]. Both Zara and H&M are alike in term of

their engagement in fast fashion industry. But while Zara is vertically integrated, H&M

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outsources its production from 700 suppliers of clothes. Zara is a fashion imitator and its

competitive edge depends on understanding the current fashion trends that customers want

and delivering it efficiently and speedily. H&M, on the other hand, offers two main seasons’

collections: spring and fall, supported with a few sub-collections each season and hires

celebrity designers like Karl Lagerfeld and Stella McCartney to catch consumer’s attention

[ CITATION Cav14 \l 2057 ]. Zara’s spotlight is on catwalk inspired products, seen on

fashion shows; H&M’s attention is centred on street fashion and everyday clothes.

Consequently, their brand communication also differs-H&M engages celebrities for its

advertisements while Zara focuses more on shop windows and simply meeting the customers’

needs.

Zara vs. Gap Inc.

San Francisco-based gap Inc. was established in 1969 and is one of the world’s largest

specialist clothing retailers with 3,053 stores in 5 countries: US, Canada, the UK, France and

Japan[ CITATION Gap16 \l 2057 ]. Unlike Zara, it outsources all its production from 1,100

suppliers located in the US and abroad[ CITATION Bha11 \l 2057 ]. Also, its

internationalisation process has not been aggressive like Zara; Gap has been cautious in its

approach and is focused only on large markets in developed countries. Gap spends a

considerable amount of revenue on advertising activities unlike Zara which prefers to invest a

percentage of revenues in opening new stores instead. Recently, Gap has been facing difficult

times due to strong competition and erosion in its target market of younger buyers.

Future Overview

Based on the above analysis of the diverse business models of Zara and main competitors,

Zara’s business model seems to be more suited for future growth. Zara comes out with

11,000 (12-16 collections) fashion items per year as compared to its rivals who introduce
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2000-4000 (two collections)[ CITATION Pau11 \l 2057 ]. Thus, Zara’s customers visit the

store more often to see new offers. Also, as compared to its rivals Zara possesses a high

degree control over the supply chain functions enabling the firm to have a faster turnaround.

Moreover, Zara has a wider global presence than its competitors. Zara’s strategy of

empowering its store employees and managers and constant upgrading of IT infrastructure

also keeps it ahead of other retailers. However, Zara should be guarded against pressure on its

supply chain owing to its rapid global expansion.

3. Pros and Cons of Zara’s (Inditex’s) multi-brand store strategy

Multi-brand strategy means marketing of two or more products belonging to the same or

related category by the same company under different and unrelated brand

names[ CITATION Sha121 \l 2057 ]. In today’s highly competitive retail scenario, it is not

enough for companies to just focus on a specific customer demographic and therefore many

have turned their focus on catering to a wide range of tastes and budgets. Especially in

comparison to B2B industries, companies in B2C industries have to pay more attention to

market segmentation in order to increase the company’s influence to customers who make

purchasing decisions based on varying factors which differ from one consumer to another.

Over the past 30 years Inditex has built a brand portfolio through brand acquisition (Massimo

Dutti in 1991 and Stradivarius in 1999) and brand development by using multi-brand strategy

(creation of Zara in 1975, Pull & Bear in 1991, Bershka in 1998, Oysho in 2001, and Uterqüe

in 2008) and brand extension strategy (Zara Home) [ CITATION Per13 \l 2057 ]. Inditex’s

many brands help it fill up the Price Gap and Quality Gaps of the target market. For example,

Zara encompasses many different styles for varying age groups, Pull & Bear focuses on

youth fashion, Massimo Dutti offers expensive designs that highlight class and elegance,

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Bershka is known for avant-garde clothing, Stradivarius offers trendy clothing for young

women, Oysho’s USP is lingerie, and Zara Home offers quality household items.

Advantages of multi-brand strategy

The multi-brand portfolio has allowed Inditex to target a wide range of customer segments

(based on particular needs, tastes, and behaviours) more effectively thus resulting in a higher

share of the market for the parent company[ CITATION Daw13 \l 2057 ]. The different

brands have especially helped Inditex tap customers who switch in between brands

frequently[ CITATION Mat15 \l 2057 ]. Moreover, there is high degree of internal

competition between sales managers of different brands to push the sales of their respective

brands. Overall, this is likely to improve the profitability of Inditex. It also helps generate

economies of scale as multiple-brand strategy results in sharing of advertising, sales,

merchandising, physical distribution, and production costs. The multi-brand strategy also

works as a shield for Inditex as the image of one brand is not associated with other brands the

company markets and there will be minimal effect on other brands if one brand does not do

well or faces a problem. Also, there is no doubt that it has helped the company improve its

overall visibility.

Disadvantages of multi-brand strategy

The cost of maintaining several brands and the risk of cannibalisation are the major

drawbacks that can be associated with Inditex’s multi-brand portfolio strategy. Moreover, it is

a difficult task for Inditex to manage multiple brands. It also raises the expectations of

customers as they expect the same or even greater standard of quality from new brands as

they may have experienced with Inditex’s well established brands like Zara. The pressure of

maintaining several brands simultaneously may reduce the focus on particular brands thus

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leading to brand equity dilution. Also, the negative feedback of one brand may have an

adverse impact on the goodwill of other brands.

From brand management perspective, multiple brands portfolio strategy can help maintain the

continuity of profit-generating activities but Inditex should be guarded against high costs and

positioning of its brands in the same market.

4. Zara’s approach to minimize risk of “Cannibalization”

In marketing parlance, cannibalization refers to the propensity of dropping sales/market share

of one brand/product when a company introduces a new competitive brand/product to the

market on their own[ CITATION Fer151 \l 2057 ]. This situation arises when the newly

introduced brand/product captures the firm’s current market rather than grabbing a new

market segment and increasing the market share of the firm as was intended.

In changing market conditions the fear of cannibalization is high among the marketing

managers whether it is between the products of the same brand, between different branded

products/brands from the same brand portfolio, or different product categories affected by

phenomenon of convergence, or from offline to online[ CITATION Oba15 \l 2057 ]. The risk

of cannibalization especially becomes high when the products offered and prices charged

across the channels overlap considerably as multiple channels target and pursue the same

customer segments[ CITATION Boo15 \l 2057 ]. Inditex which handles a multi-brand

portfolio has tackled cannibalisation by differentiating the brands mainly through product

categories, target markets, price, store presentation and retail image.

Inditex decided to diversify its brand portfolio as it wanted to increase its market share with

the underlying thought that introducing the new brands will harm other competitors more

than the company itself and in order to avoid cannibalization targeted different market

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 segments with its different brands[ CITATION Bha11 \l 2057 ]. Moreover, Inditex’s stores

are located further away from each other to reduce the risk of cannibalization. The following

table will represent how Inditex’s brands are specialized for certain product lines and

customers:

Inditex’s Multi-Brand Portfolio

Zara (1975) Pull & Massimo Bershka Stradivarius Oysho Zara Home Uterqüe (2008)
Bear(1991) Dutti (1991) (1998) (1999) (2001) (2003)
No. Of Stores 1830 750 600 800 700 450 300 80
Product (USP) Fast Fashion Casual Quality and Avant-garde Trendy Lingerie Household Accessories
clothing Clothes Conventional Clothing Clothing clothing (handbags,
Fashion (cloth for footwear, leather
bed, bath, goods, costume
and table) jewellery)

Target Women, Women and Women and Women and Women Women Women
Customer Men, and Men Men Men Age 15-25 Age15-45
Children Ages 13-23 Age 25-45 Age 13-23
Ages 0-45
Price/Quality Medium- Medium- Medium- Medium- Medium- Medium- Medium- Medium-high/high
low/medium low/medium high/medium low/medium low/medium low/medium low/medium
-high

Fig: 1: Source: Made by Student, Adapted from Lopez & Fan (2009)

To explain Inditex’s brand differentiation strategy further, Zara offers different styles

(formal, informal, dresses, suits for festival events) and fashion for men, women, and

children; Pull& Bear has a very urban style and is aimed at teens and pre-teens; Massimo

Dutti is niche and expensive and its style is elegant, classic, and studied; Bershka is aimed at

girls with its youthful style however it lacks the urbane nature of Pull & Bear; Stardivarius

can be termed a mid-way between Pull & Bear and Bershka and targets a segment of young

woman not impressed by the abovementioned brands; Oysho addresses the lucrative lingerie

market and also offers night wear and bathing suits, and to expand its market has also

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included collections for little girls and babies; Zara Home (which reaped the benefit of

transfer of associations between the parent brand and the extended one) has diversified into

an entirely new market segment; Uterqüe which sells accessories, aims to present a sober

image reminiscent of the English clubs, intends to be price competitive and lock horns with

the big brands in the market.

Thus, Zara has been able to use the retail image or the trust of customer on the existing brand

name as a tool to promote new brands while successfully warding off the risks of

cannibalization. However, it should be guarded against cannibalisation risks emanating from

its e-commerce channels.

5. Advantages and Disadvantages of Zara’s joint venture with

Tata in India

A joint venture (JV) is a joint undertaking of two or more business bodies encompassing

individuals, corporations, or governmental entities to synergistically join wealth resources

and expertise to run one business entity with a joint proprietary interest, joint management,

and profit and loss as well as risk sharing[ CITATION Thi13 \l 2057 ]. For example, in 2008

NBC Universal Television Group (Comcast), Fox Broadcasting Company (21st Century

Fox), and Disney-ABC Television Group (The Walt Disney Company) entered into a joint

venture to create the enormously popular video streaming website “Hulu.” Similarly,

Britain’s luxury car maker Jaguar Land Rover had a joint venture with Chinese company

Chery Automobile to enter the world’s second largest economy[ CITATION Pre10 \l 2057 ].

In 2009, Inditex signed an agreement with Tata (the Indian multinational conglomerate

company) to form a joint venture to develop Zara stores in the Indian market, whereby Zara

was to control 51 percent of the stake and Trent Limited (a Tata Group company) was to hold

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the remaining 49 percent[ CITATION Lop09 \l 2057 ]. Zara’s entry in the Indian market is of

strategic importance to the company and the joint venture helped it share the political,

economic, and socio-cultural risks associated with new market entry such as India’s embargo

on foreign direct investment (FDI) in retail, being on the wrong side of the social and cultural

ethos of a traditional country like India, and the barriers on property acquisition by foreign

companies in the country[ CITATION Mat15 \l 2057 ].

The joint venture with Tata was of great strategic importance to Inditex as India is one of the

GDP’s that all the companies are vying for, it has an annual growth rate of around 6 percent,

and with a population of 1.1 billion (second largest in the world) has one of the biggest

markets[ CITATION Lop09 \l 2057 ]. The JV has helped the company to build relationship

with Indian customers and establish the distribution function. Since Tata is already a very

well-known clothing line distributor in India, Zara borrowed its knowledge and expertise to

coin a strategy of combining local and global clothing lines, thus regarding cultural specifity

as well as offering trendy international clothing for customers with Westerns orientation. The

name Tata in India is a brand to reckon with and helped Zara with market penetration. The

company also took benefit from the shared infrastructure, technology, and human capital of

Tata. Moreover, Tata Group is a foreign collaborator to Zara which may help Zara to access

new international markets as Tata has presence in more than 100 countries[ CITATION

Mat15 \l 2057 ]. Also, Tata’s diverse interests in automobiles, chemicals, power,

telecommunications, hotels, consultancy, watches, jewellery etc. present an opportunity for

Zara to diversify its products in the future.

However, there are certain disadvantages which Zara face owing to its joint venture with

Tata. The company has not been able to expand aggressively in India partly due to the strict

rules and regulations imposed by the Indian government on overseas investments. Also, Tata

is a giant in India and is ubiquitous in its appeal therefore Zara runs the risk of being

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overshadowed by Tata’s brand image and reputation. In addition, India is a deeply traditional

and cultural country thus posing a challenge to Zara’s expansion especially in tier two

markets.

But there is no denying the fact that Indian market holds great importance for Zara and the

knowledge and experience gained here will help it to enter other developing countries in

future.

Conclusion

Globalization has created new markets but has also resulted in increased competition and new

challenges in the market place. The global marketing strategy thus assumes utmost

importance. However, the idea of marketing as a standardised product with a uniform

marketing plan is a misnomer. An effective marketing concept should be based on the

premise of cultural differences and guided by the belief that each foreign market is culturally

and environmentally unique. Companies like Zara which have imbibed this philosophy in

their marketing strategies have successfully expanded internationally.

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