4/7/2024 0 Comments Zara penetration pricingTherefore, the firm must produce high-quality goods and sell them at reasonable prices to win the loyalty of its customers. Customers’ dissatisfaction with Zara’s products may lead to the procurement of the rival merchandise. As indicated previously in this paper, the rivalry is stiff in the fashion industry, implying that customers have a wider choice. However, although buyers’ bargaining power is considerably low due to the strong brand equity, customers have some control over the decisions of the business. The company’s products have won the hearts of the target customers all over the UK as illustrated by the tremendous growth in the subsidiary’s profits. One of the reasons for the described phenomenon is that the company produces high-quality goods, which are highly attractive to customers. For Zara, customers’ bargaining power is moderate, implying that it is neither high nor low. On the other hand, low buyers’ bargaining power implies that consumers have little or no power to influence the company’s decisions. This situation makes labor costs low, hence leading to low prices for their goods and services.Ī high bargaining power implies that customers can influence the major decisions of a firm, including the pricing strategy (Joung 2014). The rivalry is stiffened by the fact that the company’s opponents are multinational giants, implying that they have the capability of obtaining cheap labor from the less developed nations. It is expected to experience heightened competition. Therefore, the existence of large businesses in the industry poses a great threat to the future of Zara. Businesses need to embrace the cost leadership strategy to successfully compete in the market (Chatvijit 2012). Price is one of the key sources of sustainable competitive advantage for a company. The listed companies are big enough to enjoy the economies of scale, hence giving them the power to influence the prices of raw materials (Christopher 2016). Zara’s major rivals in the UK market include Gap and Hennes & Mauritz among others. The rivalry is stiff in the fashion industry, with several large companies specializing in the production and sale of clothes. Given the importance of the UK subsidiary to the company’s profitability, this paper explores the factors behind the success of the subsidiary. The high dividends were attributed to the rapid growth in turnover for the UK branch, which grew by 8% to £535.2m in 2016 (Christopher 2016). For example, in 2016, the subsidiary paid £47m to the parent branch up from £43m in 2015 (Christopher 2016). Its UK subsidiary is central to the income of the firm as illustrated by the annual dividends it pays to the parent business. A great percentage of the company’s income comes from its subsidiaries, which are located in different parts of the globe. Today, the company has a wide range of products that target women, men, children, and teenagers. Additionally, it has expanded its line of products to fit the needs of all people in society. However, in the recent past, the company has penetrated many countries across the world in an attempt to maximize its profitability. It had no subsidiaries in other parts of the globe. In its initial stages, the company operated exclusively in Spain where it is headquartered. The company was established in 1975 in Spain with its primary objective being to retail clothes (Chatvijit 2012). Zara is a multinational company specializing in the production and distribution of clothes and other fast fashion goods.
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