Research indicates these factors include intensive competitive rivalry, buyer power with consumers, and even threats of substitute products that can drive pricing lower. Research has also indicated much negative publicity for Zara, something requiring addressing by Zara executives in order to improve and sustain a quality brand reputation in its international markets. Though Zara is able to effectively create some barriers, such as new market entrants and by removing buying power by limiting outsourced supplier presence, Zara still requires more emphasis on understanding market characteristics effectively to provide relevant products and gain more brand loyalty. Recommendations for business improvement have been identified as conducting more intensive market research, more emphasis on the promotional function and utilisation of interactive marketing, decentralisation of certain business functions along the value chain, and building more self-owned manufacturing and supply capacity in order to gain competitive advantage.
1.0 Industry analysis Buchanan and Huczynski (2010) provide knowledge of contingency theory, a strategic model that indicates as circumstances in the market or industry change, the organisation’s structure must also be changed in order to adapt and stay relevant. Zara is a prime example of a business that understands the market characteristics and capabilities of major rivals, creating contingency strategies in order to respond (quickly) to changing market and industry dynamics. This is accomplished, of course, through maintaining a stance in which Zara executives routinely scan the external environment to identify threats and opportunities that could contribute to a better market position. Thompson, Gamble and Strickland (2005) offer the Five Forces Model proposed by Michael Porter identifying five competitive threats that are industry-related that will either enhance or disturb maintaining profitability and competitive advantage. The most intensive industry concern for Zara is threat of substitutes in its operating markets. H&M, Gap Inc. and Benetton offer similar fashion merchandise that is focused on either youth markets with a trends-focused set of buying characteristics or mass markets that are attracted to fashionable styles at affordable prices. Macro-economic theory indicates that threat of substitutes becomes a legitimate concern when the demand for the product has been affected by price changes associated with substitute products (Boyes and Melvin 2007). For Zara, substitute products include clothing sold at resale shops, such as with the emerging trend for retro-style fashions. In this environment, clothing is sold at a nominal price, but still offering consumers products that are deemed fashionable. The ability of consumers to procure merchandise and fashion accessories from a variety of lower-cost sales facilities has the ability to affect demand for Zara’s merchandise.