1.

Global Aircraft Manufacturing Industry (Mayur)

Global Aircraft Manufacturing

Summary of the case:

About Boeing 787 (Dreamliner); Main competition - Airbus 380.

Complex airplane structures. Making a plane from R&D to selling may take upto 10 years and, extremely
capital intensive.

Once designed further manufacturing was extremely labour intensive and labour forces were highly
unionized.
Main procurement cost was engines.

5% growth in airline industry still loss making, but good future prospects.
Infrastructural constraints also hindered airlines from buying particular aircraft.
Size and range of the journeys was one of the major factors while buying the aircraft.

Airlines focused of total cost of ownership of the aircraft calculated it on the basis of 20 years and the
payment etc kind of thing was pretty complex with 100+ pages in contract etc.

There were many govt regulations on environment etc.

Boeing and Airbus together had 60% of the market share. And were the only ones manufacturing the
large aircrafts but the regional manufactures like bombardier and Embraer were manufacturing jets with
increased seat capacities. Commercial aircraft corporation of china was another competitor.

New trends:
Airbus made ultra high capacity plane. Boeing made long haul high operational efficiency plane. Regional
aircraft manufacturers updated their product lines and foreign partnerships became important.

The Dreamliner was designed for long-haul, point-to-point routes with moderate passenger volume.
The composite fuselage enabled the cabin to be kept at higher air pressure than
other airplanes of the same size, which meant more oxygen and less incidence of air sickness.79 The 787
also used a powerful air filtration system that made cabin air cleaner and healthier. Other innovations
included increased humidity, quieter air conditioning, less wall vibration, larger windows with
passenger-controlled tinting, and new turbulence-detecting technology that reduced in-flight bumpiness

Compare to 737 production of the 787 relied much more heavily on partnerships with strategic suppliers
Boeing outsourced more than 60% of things in 787. 100+ suppliers from 12 countries.
This new way resulted in significant delays.
Expanding markets and growing demand for more efficient planes made for a positive outlook for
aircraft manufacturers.
30000 aircraft demand from 2011-30 is there.
Takeaways:

Dreamliner point to point aircraft with 200 seats. Why would they launch this?
Predict industry evolution an then plan or strategize. Future is function of what current player thinks of
it, what new comer thinks of it and how govt plays role and the interaction between them shapes the
future.

How Iberia managed to get such great deal? They threatened to use old planes. Resale promise that
they have to resale after time is done.

Five forces analysis (2002):

1. Rivalry: 2 players rivalry is less. Switching cost high so rivalry less. But, lumpy sales: Bulk
purchase rivalry - high. Price competition very high in the industry. Very less customers.
Consolidation at customers side. Only 10 maybe able to buy aircrafts.
2. Threats of new entrants: Entry barrier very high as high capital intensive industry. Switching cost
high so difficult for customers to move away from airbus and boeing.
3. Customer bargaining power: High as bulk purchases happen and the contracts are pretty
complex.
 4. Supplier bargaining power: high as one material contributes most to the procurement cost i.e
engine. But recent trends shows that manufactures are diversifying their risks by procuring from
a large number of suppliers. But it has contributed to delays in delivery. But they are more or
less complement. Buyer power up if they keep mix of the fleet.
Unions: major factor.

RIVALRY WAS CREATING THE PROBLEM IN 2002-03

Questions:

In 2010:

What changes has happened in forces in 2010?

Ans:
2011 what revolutionary change happened?
Composites. Lighter and cheaper to fly. Great customer experience.
Dreamliner because of branding and performance became point of differentiation for airlines.
Biggest revolution: Hub and spoke vanished and point to point flights became prevalent. Dreamliner 200
people but made for long haul and point to point

Macroeconomic challenge: Airbus assumed that hub and spoke will work 8 years down the line. Boeing
assumed that point to point will work. Big airports will not be able to handle this much as bulk of the
people will be travelling to smaller cities.
Finally, both things started happening. Both hub and spoke and point to point. It was like betting on the
future for both the companies.

In 2002 price differentiation was very difficult.

Boeing gave away large aircraft to airbus and occupied medium sized point to point aircraft. Market got
divided.

Manufacturing was outsourced. Why boeing did that? Reduce investment in manufacturing. Supplier
power increased in 2011 because of this. This is the risk of outsourcing. The lead time is reduced but the
porter’s force is increased.

Smaller aircraft will not enter the market. Skill set constraint, capital investment constraint. Learning
curve very difficult.

Chinese aircraft industry might be a threat. Boeing had to manufacture sub assemblies in china to sell in
china.

2. Autonomous Vehicle (Aishwarya)

Case Highlights:
1. Race to commercialize autonomous vehicle technology
2. 2001, US mandated “unmanned remote-controlled vehicles” for military but military wanted
vehicles with no driver. DARPA started research on this.
3. DARPA created the Grand Challenge of robo-car series.
4. Google steps in: Larry Page and Sergey Brin participated in 3 secretly with Stanford. In
2010,created the research lab “Google X” with AV as the first project.
5. AV: Natural Evolution
6. +ves: Freedom, Lower Cost, Safer, Exclusive Use Servant.
7. Challenge: How will firms meaningfully differentiate as handling/acceleration etc. are not useful
parameters anymore.
8. Autoindustry will shrink because of decline in cars (because of shared AVs)
9. Stats:
Lecture Notes:
Study the trajectory of an industry to understand if the evolution would be irreversible or not.
Things to focus on to understand the trajectory:
● Industry Structure
● Industry Attractiveness (5 Forces)
● Evolution and structural analysis

Questions:
1. What do you think about the trend towards autonomous vehicles (AV)? Is it decisive and
irreversible? Why or why not?
a. Experimental stage in US,
b. India will see usage by 2030
c. Irreversible because many industries will be tossed completely (discussed in 2)

2. Choose an industry you understand and explain how autonomous vehicles might impact that
industry. Think about a “to-be” new opportunity autonomous vehicles enable and briefly explain
your idea using Kim & Mauborgne’s Eliminate-Reduce-Raise-Create Grid.
a. Autoinsurance industry:
■ Leverages machine failures and accidents for profit
■ AVs will be highly safe
 ■ No accidents (sensors and data will be analyzed to make the product safest, only
minor accidents might happen if people still use traditional vehicles)
■ Badly hit.
b. Kim and M’s Grid:
■ Small package delivery systems
■ USP- World leader in delivery services will be overturned
■ AVs will deliver smaller packages
■ Grid: Eliminate: Drivers, Reduce: accidents, cost, Raise: Convenience, Create:
New Mobility solution

3. Use autonomous vehicles to discuss the industry evolution, the roles of different players, and the
shift of the profit pool.

AV evolution and Shift of profit pool can take place in any of the following ways:

a. Auto Manufacturers make software and hardware for AVs

b. Software by google, apple… hardware by auto manufacturers
c. Self-made AV tech
d. AV rentals
4. Is autonomous driving technology a blue ocean opportunity? Why or why not?

Taking into account the market condition of the automobile industry in India and around the
world, the surge of technology and the breakdown of barriers to international market, a point of
saturation is inevitable in the near future.

Niche markets and monopoly havens are continuing to disappear, with the availability of multiple
options in car purchase.

Therefore, in order to bring a radical change that would not only deliver distinguished value to the
consumer but also create a new need, autonomous driving technology will be a new blue ocean
market in the red ocean of conventional passenger vehicles.

5. What, if anything, is the difference between technology innovation and value innovation?
 Technological leadership may not always culminate into value innovation and it is not the sole
factor for having a successful market strategy. Organizations may end up pushing products in the
market that are too ahead of their time or too complicated. Without a sustainable, complementary
ecosystem, technological inventions seldom create value. An organization can thus create blue
oceans, with or without technological inventions but not without creating desirable value, and
thus by making competition irrelevant.

Instead of focusing on competing in the existing market space, value innovation focuses on
breaking the existing barriers in the market by creating an incremental value for the buyers such
that the competitors are left behind. Thus, value creation anchors not on how innovative the
technology is but the added value it gives to the buyer. It is concerned about how to make buyers'
lives simple, productive and safe. To shift from red oceans to blue oceans, it is imperative that the
organizations focus on value creation in order to expand its horizons of growth.

3. OYO Hotels (Mamta)

Q1. Evaluate the competitive and market context in India when OYO launched operations in the
country using 5 forces model.

1.Bargaining power of suppliers - LOW

●No. of suppliers – Large number of unorganised mid-tier, budget hotels available [>1 Million]
●Size of suppliers – Small sized suppliers with inadequate access to risk capital, relative dearth of
professionally trained talent in semi-urban and rural locations, and infrastructure shortcomings that
stifled business growth.
●Uniqueness of service- No uniqueness in service due to reasons mentioned above. Operate on
shoestring budgets so can’t refresh offerings periodically.
●Your ability to substitute – High ability to substitute due to abundant availability of similar mid-tier
hotels
●Cost of changing – Low cost of changing suppliers.

2. Industry rivalry - LOW

●No. of competitors – Low number of competitors compared to vastness of market size. Value
proposition of Oyo was different than existing competitors – Focus on predictability rather than
discoverability.
●Quality differences- Competitors didn’t offer standardization like Oyo so substantial quality difference.
●Other differences – Booking speed on Oyo was high than competitors. Oyo focused on differentiation,
where no competitors were present.
●Switching costs- Low switching cost for customers
Customer loyalty – High customer loyalty towards Oyo

3. Threat of new entrants - MEDIUM

●Time & cost of entry –High capex along with skilled labour required. Takes time to on-board hotels and
win their trust.
●Specialist knowledge – Specialist knowledge in domain of CRM, operational and quality control of
hotels required.
●Economies of scale- High economies of scale needed to justify high capex spend as well as to on board
investors. Oyo aims profitability from India in 2022 [before pandemic struck] it started in 2013, so new
entrants would face a tough time.
●Technology protection: Replication of technology is possible
●Barriers to entry: strong barriers to entry due to high capex needed

4. Threat of substitutes - LOW

Possible substitutes would be informal accommodations with friends and family, hostels, motels.
Substitutes are not a major threat to hotel industry as a whole. The cost of change would be
inconvenience & low-quality service to customers

5. Bargaining power of buyers: MEDIUM

Certain categories of buyer such as corporate purchases, tour operators, Airlines, convention organizers
have power to negotiate and drive down prices.
●No. of customers: Customers can be divided into two segments: Individual retail & bulk orders.
●Differences between competitors: substantial difference between competitors as Oyo focuses on
standard and quality experience with a 200+ point feature checklist for each hotel.
●Price sensitivity: Highly price sensitive customer segment that looks for affordable mid-tier hotel
accommodation.
●Ability to substitute: High ability as customers are tech savvy and might try other apps or larger hotel
chains.
●Cost of changing: Cost of changing for customer is not substantial.

Q2. The reason why OYO’s value proposition resonated with the buyers can be explained using the
Blue Ocean Framework as follows:
● Create: On the buyers/ customer side of the value proposition, OYO was obsessed with
delivering a predictable customer experience that would be consistent with the customer’s
budget price point. OYO created a set of standards that had to have amenities like free Wifi, air
conditioning, comfortable beds and linen, television sets, adequate toiletries and clean
restrooms. In order to create a predictable experience, standardizing and auditing the facilities
that wanted to be listed in OYO with the above-mentioned amenities was a minimum
requirement. OYO also invested heavily in technology from the very beginning. This allowed
them to create a superior app that allowed customers to make a booking in three easy steps.
The ease of property search, booking a room for the desired duration and doing a cashless
transaction without the hassle of paying later was unique at that time as India’s banking and
telecommunication sectors were not adept at online transactions.
 ● Eliminate: The mid-tier hotel market lacked uniform service standards thus causing uneven
customer experience. Most of the hotels then were family owned and thus were small
ventures with limited budgets who did not have the requisite capital to update their offerings
periodically. The location of these hotels were also in remote locations and were not easily
discoverable. OYO eliminated the need for physically scouting a hotel upon arrival of the
destination thus bringing comfort and ease in the lives of the buyers.
● Raise: The fact that the mid-tier hotel industry never had an app through which people could
book their stays before-hand and can be assured of the amenities that they would be
receiving during their stay really raised the standards of OYO’s proposition as opposed to the
industry norms.
● Reduce: The unpredictability of custom experience was eliminated with OYO’s chain of hotels
and amenities that would be available in the hotel within their budget.

Q3. How did OYO’s model create value in the hotel industry in the country? Use Blue Ocean Strategy
[BOS] framework to answer the last two questions.

To break the trade-off between differentiation and low cost in creating a new value curve within
the hotel industry, OYO followed the following steps which are explained using the blue ocean
framework.
● Eliminate: OYO focused on targeting the mid-tier hotel market in the country. They
differentiated themselves by eliminating the non-uniformity in terms of service and facilities
across their hotel chain. A protocol of standards which would be used to audit facilities was
developed and the basic standards of amenities such as air conditioning, comfortable beds
and linens, television sets, clean restroom facilities, adequate toiletries, and free Wi-Fi access
were made mandatory.
● Raise: OYO raised the level of investment made by the budget hotel owners for development
and investments done in information technology to improve the occupancy. The initial value
proposition that OYO offered the budget hotel owners included a guarantee to increase
occupancy, enhanced user experience that would increase customer loyalty, and access to a
larger pool of customers because of
increased discoverability. Owners were reluctant to make the additional investments,
especially given the fact that OYO did not have much of a track record in the business. These
concerns were eased by offering an upfront payment for hotel rooms that would be set aside
for OYO customers, and subsequently arranged for financing of hotel upgrades as well.
Investments in technology targeted four key stakeholders—the hotel owners, the customers,
OYO property managers, and OYO management. The superior analytical capabilities turned out
to be vital to uncovering non-intuitive insights, especially in a fragmented market such as India.
● Reduce: The company fashioned an e-bidding program that allowed hotel owners to procure
supplies at much lower prices since they were able to access the scale benefits that OYO had
created for owners through its platform. These benefits spread to construction costs as well and
offered owners the ability to solicit competitive bids for their upgrading projects that could be
delivered at a fraction of the cost and often in a much shorter time frame than they would have
been able to accomplish independently. This in turn led to them being able to offer a reduced
 price per room compared to its competitors.
● Create: OYO created a franchise and management model (called “manchise”) under which would
take operational control of the hotel and provide the owner a guaranteed rate of return. The
offered a hands-on, technology-assisted operation with guaranteed occupancy rates. They
provided location choices through its app and provided more value to the consumers by making
it easier for them to locate the rooms and it also helped the company owners by giving a view
of the inventory. OYO also launched its own OYO Skills Institute where it provided training for
frontline staff so that a readily deployable talent pool was available. It designated service
captains, well-trained staff with superior customer-facing and problem-solving capabilities, to
oversee clusters of hotels that were located in close proximity to each other.

Q4. What are the potential challenges that the company will confront in developed countries
such as the UK, Japan, and the USA? Are the challenges likely to be similar? What do you
think OYO should do to overcome those challenges?

Answer:
Few challenges will be similar whereas, there will be challenges which will be
geography/culture specific.

Similar Challenges:
▪ Building credibility and onboarding both- Hoteliers (Supply) and Consumers (demand)
▪ Standardization - meeting the quality threshold (predictability)
▪ Building awareness (discoverability)

Unique Challenges:
▪ Cost sensitive travellers: Developed countries like the UK and US have a lower proportion
of cost-sensitive travellers. Also, the buyer sophistication index (as per ex 2) is higher in
these countries which means that the customers in these regions do not make the decision
to consume the services solely on the basis of price compare to other countries of emerging
markets
▪ Hotelier culture: Hotel industry being much more structured in the developed countries
might result in a difficulty in acquiring a high degree of control in individual hotels.
▪ Customer segments: Due to the diverse geographies in Europe, customer segments are
highly fragmented, which makes it difficult to build awareness.
▪ Connectivity: Oyo solved the problem of discoverability of unbranded budget hotels in
India, which had low transport connectivity and were not on the mind of the customers. In
countries like US, UK, and Japan, as per exhibit 2 the connectivity is higher than the rest of
the countries
▪ Credit availability: One of the major incentives for Indian hotel owners to get associated
with Oyo was the lack of financial backing/resources they had to upgrade the services they
 provided. As per exhibit 2 the average total value to private sector provided by the
domestic creditors in these countries was much higher than the emerging market countries
which means the fund/credit was easily available to these hotel owners to make an
upgrade/modifications with the changing needs of the customers (In India Oyo gave upfront
credit to owners to make upgrades)

Other geography specific challenges:

Japan: Union forces; Softbank in mire
UK: Most sophisticated and demanding of hospitality customers
US: Cannot slash prices to the level that the hotels attract drug users and prostitutes

Solutions:
▪ Diversification: Can create a niche brand of luxury hotels for the segment of non-cost-
sensitive travellers.
▪ Improve Technology: Create an ease of access platform for communication between owners
and Oyo management in order to address concerns effectively and efficiently.
▪ Strategic Balance: Maintain a smart balance in control between the management and the
owners.
▪ Culture-specific curation: Have local leadership to get a better understanding of the culture.
In order to tackle diverse geographies, Oyo can curate the rooms to give a local flavour, to
suit the specific locations and traveller expectations.

A. OYO in Malaysia
General Challenges
Typical challenges:
● Overcoming customer’s trust deficiency
● Unorganised suppliers
● Understanding and adapting the new local culture and social environment
● Understanding the travel Patterns of the new demographic
● Trying to overcome language barrier while building local team

Strategy
Strategy applied to make first global venture a success::
● Understanding the local culture
● Understanding the travel Patterns of the new demographic
● Customizing product features to suit the loca demand
● Localized operations
● Localised Hiring

Results
 ● First success in the international waters
● Gave way for the expansion into the developed countries, such as, China, Japan, US, and UAE

B. OYO in China
Challenges
● Regulatory hurdles
● Local rivals emerging rapidly
● Ubiquitous cultural differences

Investments
Ritesh strategized to treat China like its home market & focus on hyperlocal approach
$150-$200mn - OYO’s Capital Base
$50mn - Softbank Fund

Current Market
● China had 52000 budget motels in 2017
● 81% were unbranded & operated by localites
● Only 19% controlled by large hotel chains
● Market opportunities for those who could navigate through infrastructure issues in remote
locations

Strategy
Ritesh decided to enter the Chinese market as a local player. He intelligently categorised strategy into
different components:
● Recruitment
○ Hire local staff, proficient in regional language
○ 20/6000 staff could speak english
○ Local OYO Captain managed 3-10 hotels
● Company Policies
● Customer-segment
Targeted middle-income wage earners, who aspired to travel with comfort at reasonable budget
● Owners
Offered end-to-end array of services from procurement to multi-channel distribution both as platform &
OTA

Results
Minimal standardisation of offerings & consistent branding helped OYO stand out in Chinese market.
By the end of first year, OYO was offering 180,000 rooms in 4,000 hotels under Franchise, Manchises
across 285 cities

OYO In Indonesia
Strategy
Strategy applied to obtain South East Asia’s most populous market was by:
● Targeting growing middle class population.
● Establishing rooms in most populous cities
● Localized operations
● Localised Hiring
Results
The Indonesian market had following results:
● Grown operations five fold in three months
● The total number of rooms now is 467 millions
● % value by rsp from 2015-19 rise by 31.40%
● 2nd highest in Asia after China
OYO in Philippines
Strategy
Strategy applied in 2018 to capture the market was by:
● Targeting growing middle class population.
● Establishing rooms in most populous cities (Manila, Cebu, Boracay)
● Localized operations to solve unique local problems
● Localised Hiring & creation of strong local leadership

Results
The Philipino market had following results:
● Added 100+ Hotels in 6 months
● Expanded in 15 cities across the small island nation
● Hired more than 200 OYOpreneurs (employees)

OYO in Saudi Arabia

Strategy
Strategy applied at the end of 2018 to enter market was by:
● Leveraging the influence of saudi investors of Softbank Vision fund and SAPIF
● Established two OYO skill institutes in Jeddah & Riyadh
● Plan for 5000+ jobs for locals by 2020
● Leveraged common cultural bonds with India

Result
The Indonesian market had following results:
● Ease of entry by SAGIA in licencing to FDI
● Creation of goodwill with the government
● Strong local leadership cadre to efficiently run the chain in Saudi Arabia

OYO in UAE
Strategy
Strategy applied in 2018 to capture the market was by:
● Creation of luxury brand name Capital O
● Focus on business travelers and tourists charging upto $80 per night.
● Focus on creating reliably operated properties
● Localised Hiring & creation of strong local leadership

Result
The UAE market had following results:
● Hosted over 100,000 guests in first year
● Added 105 hotels across UAE in first year

Lessons
Localised business: Home away from Home strategy with decentralised decision making for solving
geographic specific problems/pain points.

Localised Workforce : local workforce with proficiency in native language and knowledge of local issues
and solutions.

End to End Tech solution : Array of services to address the problems of predictability by ensuring
standardised services and discoverability using data analytics

Rapid expansion: Focus on rapidly expanding chains by using hybrid models of leasing, franchise,
manchise to dissuade imposters and fight competition in Industry

Customer Centricity : In all geographies the standards and Decor was designed as per local customer
tastes and strictly adhered to with SPOs in place

4. Stitch Fix (Avantika)

1. Online apparel company: data analysis: A customer is sent a box of 5 items, they are free to
keep what they like and return what they don’t. The company analyzes this consumer
behaviours patterns .Allow customers to have personalize stylists
2. Value chain: Algorithms that they use
3. Online apparel industry: which forces are critical- market size 3 trillion dollar- Threat of
substitutes is high (amazon prime wadrobe), Power of suppliers- high (brand owners partnership
is very imp), Buyer power- limited (moderate due to customer loyalty), comp rivalry- limited to 2
companies
4. Barrier to imitation: customer retention is high, customer loyalty, more customer feedback-
Symbiotic relationship between the customer and teh company, co-creation of value
5. Cannot find customer churn rate as it is not a subscription model
6.

7. To fend off competitive threats, StichFix may look for the some of the following solutions:
a. Expanding into new territories - StitchFix can look for other potential markets like
Europe or Australia, where they might not be facing competition from copycat
companies. However, they need to assess the cost of expanding operations and
perform a proper market analysis to guage the potential market and the possibility of
accumulaing high revenues.
b. Outsourcing - As per the case, most of the work done by StichFix is in-house, which
leads to increase in operational costs. Outsourcing certain activities like data storage
might refuce their costs. Also, they might look for me stylists outside the country to
bring about variety in the products offered by them. As mentioned in the case, the
customers look forward to newness and surprise from StitchFix, so outsourcing some
of the styling activities might bring in fresh designs which would be appreciated by
the customers.
c. Inventory Management – StitchFix’s inventory has been in the decline continously.
Even though they might be saving inventory costs by maintaining lower costs, it
affects the variability in product offerings. Given Amazon Wardrobe and Amazon
Personal Shopper’s high inventory levels, they might be able to offer more options to
customers. StitchFix must try to improve their inventory levels to compete
d. Increased communication between customers and stylist – StitchFix provides limited
options for the customers to interact with the stylists. Their competitor Nordstrom
Trunk Club provides better visibility. StitchFix must try to improve upon this factor to
increase customer engagement. It would also help in improving the employee ratings
(currently at a lowly 3.3/5).
 e. Improve try-on period – StitchFix can increase the try-on period from 3 days. Amazon
has a return policy which allows users to keep products for upto 10 days. StitchFix
can do the same or give more time to the users to decide.

5. Zara in China & India (Sejal)

1. Compare and contrast the target segment and value proposition of Zara, against its key
competitors, H&M and Uniqlo.

Value Proposition
● Zara’s value proposition focuses on keeping up with fast-changing fashion trends. Zara disrupted
the fashion industry by shortening the time it took for the product to reach the market.
○ Improved Product Availability Stores, shipments arrive twice every week.
○ Its activity configuration allows it to spot trends and launch new pieces in less than
three weeks.
○ Competitors show two collections per year and take over nine months to get items to
store.
● Zara ships only a few items in each style to its stores, so inventory is always scarce. This leads to
constantly changing collections and customers tend to “buy it when they see it,”.
○ H&M 80% of the products are stocked throughout the year and only 20% is designed
through the season.
○ Unsold item account for 10% of stock as opposed to industry average is 17-20%
● Flexible to respond to change in consumer demand
○ Zara uses a pull system in their supply chain and inventory management. They produce
a small quantity of each style because of the numerous styles that they come out with
on a month-to-month basis.
● Zara can provide tailored products and variety for its consumers as it produces 11000 designs
annually. It gives a lot of importance to design attractiveness.
○ While the competitors like H&M and Uniqlo produce only 2000-4000 designs.
○ Uniqlo focuses on reasonably fashionable but not trendy offerings at low price, they try
to differentiate by introducing new material for clothes. It offers basic design, never out
of style and performance-oriented products which are high quality and can sell their
products for long time without changing design.
○ H&M also doesn’t change designs as fast as Zara but offers comparable fashionable
products.
● Faster time to the market/extending product line it takes only 4-5 weeks from conception of a
new design to its distribution, essentially due to vertical integration of the value chain.
 ● Zara's supply chain is integrated vertically through their closely controlled facility in Spain. This
ensures a faster turnover and delivery because every item is inspected and stored in this
controlled facility.
○ Most of competitor’s production facilities are in low production cost countries of Asia.
○ H&M’s supplier time is slower than Zara but faster than UNIQLO. Unlike Zara and
UNIQLO, it never buys its own materials and outsources manufacturing
● Zara spends lesser on promotions and prefer to spend more on stores and products. It always
chooses best locations in city which are also closer to luxury brands.

Target Audience

● Zara's target market is young, price-conscious, and highly sensitive to the latest fashion trends
● H&M targets women in the lower middle class and working class. The target market for H&M is
for younger people who follow trends and want to spend less.
● Uniqlo's fashion target market includes both men and women, this includes teenagers as well as
individuals well into adulthood. It targets people who care more about quality and less about
trendy fashion.

Hence, we can see that H&M and Zara have very similar and overlapping target audiences i.e., young,
price conscious consumers who are sensitive to the latest fashion trends.

H&M Zara

Delivering fashion and quality at Focus on keeping up with

Value Proposition
the best price fast-changing fashion trends

Young fashionable customers

Primarily young customers (15-30
(20-40 years old) who are keen to
Target Segment years old) who are slightly price
follow latest western fashion
conscious
trends

Longer Inventory turnaround with

Quick inventory turnaround with
Merchandising larger quantities. Often hosts sales
minimal quantity of SKUs
to push through older inventory

Higher quality of service in store.

Standard service in store. Service
Service App is well designed and boosts
through app is non-differentiated
marketing efforts
 Numerous stores within same city.
Store Usually singular store in city.
Presence in metros and Tier 2/3
Atmospherics Largely present in metros.
cities.
Q. How are benefits and drawbacks reflected in the performance indicators of the three competitors:
H&M, Uniqlo and Zara?
Zara opted for an 'anti-advertising approach, allocating only 0.3% of its revenue to
advertising. This was done to facilitate higher spending on their stores and products.
While H&M and Uniqlo spent 5% and 4% of their revenue respectively on advertising
through brand collaborations, social media, celebrity ambassadors and extravagant
commercials, Zara's unique testing process of small runs at test stores resulted in a failure
rate of just 1%, which is drastically below the industry average of 10%. Zara's products were
priced higher than that of its competitors, and despite this, it managed to sell 80-85% of its
stock at full price(much ahead of the industry average of 60-70%). Zara introduced new
styles roughly every three weeks with limited inventories. This customers were greeted with
new products at each visit. This is seen in the way that the average visits per customer per
year for Zara is much higher than that of others. The frequent feedback collection from store
managers were incorporated instantly into designing. This, along with churning out styles
every few weeks, led to Zara developing 18000 styles annually while H&M and Uniqlo were
lagging way behind at 2000 and 4000, respectively.

6. Pandora Radio (Grishma)

Question: Among the possible Options for their high usage customers, which would you pursue and
why?
Ans: Pandora Radio has two major problems:
1. Pandora had grown organically, on the strength of word-of-mouth publicity. It had Evangelist users to
thank for the explosive growth, these same users were also most costly. They make up 9% of listeners
who listen a ton, but Pandora can never make profits out of them.
2. There is a second problem called “Leaky faucet”. Because users were not paying for the service, they
often left Pandora radio on all day, even while away from their computers. While this streaming cost the
users nothing, Pandora was required to pay SoundExchange for each song played. This problem can be
easily addressed by providing a “Next” button that users should click in order to play the next song,
instead of providing the users a continuous streaming. This makes sure that the users only use Pandora
while they are actively sitting in front of their computers and when the users don’t click the “Next”
button for a pre-defined time like 5mins(assumption), the Pandora service should be designed to go into
Sleep mode which could only awake when a user tries to interact with the application once again.
Pandora being a free service needs a large user base to spread the fixed costs. So, any strategy that has
the potential to reduce the size of user base will be detrimental to the business.
There were 3 options to make Pandora a Profitable enterprise:
a) More Advertising: It was given that Pandora was still only selling about 60% of available ad space.
Efforts can be made to exploit this space further through targeted but non-intrusive and non-audio ads
to generate more ad revenue to the company. For heavy users, the frequency of ads can be increased
after a fixed number of hours of usage per month, this will ensure that more ad revenue is generated
from these heavy users while not compromising on the service provided to the light to middle range
users.
b) Freemium: This involves providing a limited but free service to all users, and also offer a premium
priced value-added membership for “super users”. The company in its early days experimented with a
similar model and realized that users just vanish after using the limited free service. The super users are
crucial for increasing the user base. Bringing in a premium priced model for them may reduce the
number of super users. So, pursuing this would not be profitable.
c) Subscription: This involves introducing a subscription model for all users. Even though this model
creates a low subscription fee when spread over a large user base, the company already tried this model
before and realized that it’s not going to work. So, there is no point to going back to a strategy that
didn’t work before. Also, this has the potential to decrease the user base which may defeat the
argument of low subscription fee. So, in essence having a “Next” button and “Sleep Mode” would
essentially eliminate the problem of “Leaky Faucet”, Increased frequency Advertising for “super users”
would create more revenue from them. The Freemium and Subscription models are not worth pursuing.

Strength: 1. User basis. 2. Music Genome Project.

Weakness: Lack of ability to create sufficient revenue.
Opportunity: 1. High customer recognition. 2. Number of user basis.
Threat: The competition is getting worse in the industry

In Pandora’s Business Model, there are three main sections which are User Methods: Annual Subscribers
Partnering Platforms: Mobile Devices, Home Entertainment and Car Radios Applications Ad Partners:
Affiliate Marketing

Key Points:
The variable cost (VCs) were very high. Furthermore, the scale of the unprofitable customers had been
increasing VC. Although it affected negatively VC, it was increasing the popularity of Pandora as an
Internet radio. On the other hand, their customers were loyal for the freemium model. Therefore, they
are not sufficient for the subscription model. According to Shih and Tecco, it was “Leaky Faucet”
problem. Pandora’s revenue also increased with this large scale of usage. The 87 % of total revenue
came from the 98 % of Pandora’s users (Lazaro, 2011). Although it had a large amount of users, they
couldn’t use them efficiently in order to increase pay-per click based advertising revenue. In conclusion,
they had two main problems in their business model, which were the “Leaky Faucet” and 98%
unprofitable customers.

Possible Solutions:
Increasing in Advertising: The scale of its customers is very important; therefore, Pandora should add
more advertisements to increase their CTR(click through rate). In the affiliate marketing when Pandora
gets more click rate, Pandora can get more advertisements and gain more money from those digital
advertisers. Furthermore, Pandora should find a way to increase the usage percentage of ad space.
Pandora would be able to earn more money and increase its revenue by achieving these goals.
Going with the “Freemium’’ Model: The Freemium model is attractive option to capture the new and
keep the current customers. Pandora should add specific service in order to get money from the
customers who are free users.
Implementing A Subscription Model: This model requires getting payments from all customers.
Spreading the costs on the wide customer base lowers the cost per user. It might cause losing
customers. There is possibility that a lot of customers would stop using Pandora.
Charging Money According to Listening Hours: In this solution, there shouldn’t be any charge to the
customers who listen to Pandora less than 40 hours per month. Pandora could charge 0.99 $ per month
on their customers who listen to the music 40 hours to 80 hours during the month.