Zara Porter's Five Forces Analysis

This report aims to analyze the effect of external analysis and the various other forces of change that has an effect on the business environment of Zara. External environment is an important consideration while planning the strategy for future as well as for venturing into the international markets. Every company irrespective of the sector of operation faces a phase of stagnation in the domestic market at one point in time and there is a need to take stock of situation and reframe the strategy to move ahead. External environment comprises of many dynamic forces like political, technological, social, cultural and environmental factors. These factors form the macro environment of the company. For the purpose of this paper, Zara has been chosen

Because of this the market segment catered by Zara is large as compared to the most of its competitors. They segment their product line by women’s (60%), men’s (25%) and the fast growing children’s (15%) department. Zara started operations in Spain in 1975, and now operates in 74 countries worldwide (Wheelen, 2012). Porter’s five forces analysis provides an accurate and comprehensive framework to analyse the external environment of luxury handbag industry in which Zara Operates. According to Michael E Porter 's five forces of competitive position model, following are the five factors which affect the competition landscape of a company (Porter,

Zara is vertically integrated and takes care of designing, manufacturing and distributing its products. This gives it an immense hold on the market as most of the operational inefficiencies are eliminated by the company’s on employees who identify with the larger goal and value proposition of the brand (The New York Times, 2012). Zara works along with the consumers to understand them more closely rather than imposing its own predictions on them. Zara creates an environment of artificial scarcity in its stores for every design it manufactures so that consumers get a feel of exclusivity rather than stock pile up (Johnson, 2012). This gives them a sense of pride to buy a limited edition of products which they find at Zara stores only. Zara invests around .3 % of its revenues in advertising as compared to its competitors who invest around 3-5 % of their revenues in advertising. This increases its availability of funds for investments in design and in-house manufacturing rather than cutting the cost on these crucial operations. The lack of advertising is compensated by placing the stores at popular locations with good footfall and thus raising the customer inflow by the virtue of its store locations. Zara has been able to maintain a loyal relationship with its