1.1 The Case Context
Companies are increasingly shifting towards e-business models and setting up online selling divisions. The online shopping industry has been growing at a rapid pace over the last decade and present companies with immense opportunities. However, in order to successfully benefit from online selling, companies have to design, incorporate and manage an effective e-business model.
1.2 Company Description
Zara is the world’s leading fashion retailer that has gained massive success over the years, using its integrated fast fashion supply chain model (Xabier and Jesus 2000).
1.3 Benefits of Involving in E-Business
Zara operates an integrated vertical marketing system, where it owns a large percentage of the processes. Entry in the e-business retail sector will benefit the company in the following ways (Barnes and Greenwood 2010).
Zara owns a large key portion of its marketing system, which enables to exhibit maximum control over all activities that translate into higher profitable returns. This control is beneficial in terms of keeping each of the supply chain activities completely focused on customer satisfaction and efficiency as desired by the company (Barnes 2010).
Due to heavy reliance on automation, labor costs are minimal for Zara. While rivals are suffering from high production costs, Zara does not have to worry about low cost suppliers that employ cheap labor. The e-business model calls for maximum reliance on technological resources and minimum use of in-store staff (Booth 2009).
Automation in most of the activities of the supply chain and fast response culture among employees present in the supply chain enables maximum efficiency to be witnessed and benefited from in e-business models (Fellenstein and Wood 2000).
The production is kept “Just-in-Time” and there are frequent shipments, which result in lower inventory levels in warehouses. Inventory management is computerized, which further removes the amount of labor, employed in the company, thus, lower labor costs and more efficiency due to automation (Barnes 2010).
The key philosophy behind the efficient supply chain in e-business models of fashion retailers is to bring trends to shelves faster in the form of product lines to meet customer expectation and even go beyond their expectations in availability of designs. While retailers take months to transform trends into designs for customers, at Zara, new trends are available within two weeks. As product lines at Zara have lower shelf lives, customers rush to purchase them, which means all sales are done on retail prices and the retailer never has to use discounts and seasonal sales offers to attract customers and get rid of left over items (Barnes 2010).
E-stores benefit from the use of cloud computing to manage information (Fellenstein and Wood 2000). Effective information systems are a source of competitive advantage for online retailers and Zara will benefit from implementing integrated information management systems.
2. Current Status of E-business in the Sector
2.1 Online Fashion Retail Market
Fashion brands and fashion retailers have taken online distribution as a differentiation strategy to set apart their services to customers upon seeing the rise of the use of the web by their potential customers. The success of the online stores such as Amazon and eBay, which further revolutionized the dot com bubble, saw the dawn of the internet selling of fashion brands (Oxborrow 2010). Amazon’s cloud computing model was mostly utilized formerly by the online sellers but with the entry of various online retailers around the world, specific models and more advanced selling strategies are now being undertaken. Examples of NEXT, Marks and Spencer, Zara and various others are common in defining how the online selling strategy is implemented by fashion retailers and for fashion brands.
NEXT’s Online Directory is an online fashion retail outlet, where the fashion brand is sold at the premium and affordable pricing along with the visual environment that produces the impact into the consumer’s mind that is associated with the brand. The colors, the images and the product offers are all linked with the brand strategy and brand persona (Oxborrow 2010). For fashion brands, it is very important to stick to the personality, value and distinctiveness that they offer to the consumers as they are consumed for the very purpose of attaining distinctiveness that makes them define their uniqueness in their reference groups. In 2010, NEXT’s online Directory contributed around 6.3% to its overall sales and showed a growth of 2% from 2009, while its physical retail outlet showed a sharp decline of 10% from 2009. This showed how much effective its online selling strategy was that attracted and retained a larger sum of shoppers and engaged them in shopping for the fashion brand (Newman and Patel 2008; Oxborrow 2010).
Marks and Spencer’s key to winning for both online and offline selling strategies is the variety in the product line it offers and its long history in the UK that allows to sustain its market leadership (Booth 2009). However, despite of its success in the physical fashion retail, its current position in the online selling is in a growing stage, where NEXT enjoys the market leadership and it is yet to capture a larger market share of online shoppers (Newman and Patel 2008).
Zara, which is the currently acclaimed world’s largest fashion retailer, has recently penetrated the online selling channel, where its key strategy is the application of a simple, yet attractive and engaging and eye-catching design and layout of the website that speaks of its brand persona, which is trendy, bold and outspoken. But to support its online customer servis and promise of fast fashion delivery, Zara uses an automated value chain model (Barnes and Greenwood 2010).
Understanding the consumer behavior with regard to the online distribution of fashion brands entails the understanding of two dimensions of the consumer behavior and the interaction between them: the online consumer behavior and the fashion brands consumer behavior (Birtwhistle 2010).
The consumer behavior for online retail distribution is influenced heavily from the individual, technology, social environment, and economic forces, whereby the key underlying factors are the accessibility, website attractiveness and interactivity, and the affordability of the process (Kim and Lim 1996). The individual forces stem from the ability of the user to access the web and the know-how of the process, the perceived risks, associated with the online purchase and selling. It has been found through research that the consumer fears purchasing online mostly for the first time but having given the credit card information once to a website that delivered its promise successfully, the consumer tends to remain loyal as the perceived risks get eliminated (Ko and Mok 2002). The consumer loyalty, thus, is much greater on the online selling environment than in the physical selling environment (Kim and Lee 2000; Kim 2005).
Consumer behavior for fashion brand is heavily influence with also individual factors, technology, social environment and the economic forces (Booth 2009; Barnes and Greenwood 2010). The key underlying considerations and forces as the social groups and influence of the social environment, the social fashion trends, the media, technological influence comprise of the emerging channels to reach out to the target customers, and the economic influences relate with the buying power as now more consumers with a lesser amount of disposable income to spare on shopping for fashion brands, consider more purchases of cheaper brands and their brand loyalty has been affected (Kim and Lee 2000).
As for the individual factors, a person’s need for social belongingness and the need to look distinct among the social environment are the two key personal factors that the fashion marketers target to differentiate their brands. Now, the recent trend has been towards targeting the on-the-go lifestyle of the consumers, for which the mobile and internet channels of communication and distribution are playing a winning role (Kim 2005; Newman and Patel 2008).
The website layout and the services offered online for the selling of the fashion brand produce a heavy influence upon the overall success of the online distribution strategy (Newman and Patel 2008). The key factors that are important for the layout of the website are: attractiveness, interactivity, and accessibility, ease of understanding, searching and locating and assurance for the privacy and confidentiality of customer information and the customer services provided (Jo and Hong 1998).
The following trends and opportunities are available and are being used by fashion brands within the online distribution channel.
Co-branding occurs, when two fashion labels jointly sell their brands. Fashion brands have co-branded online sellers who have attained a name in the fashion retailing online (Fellenstein and Wood 2000). Google boutique is a new name in the fashion retail industry present online and is currently offering various brands under the blanket (Booth 2009; Barnes and Greenwood 2010).
This is when the fashion retailers use third party distributors often in a different country to distribute the brand. Using the example of NEXT once again, the brand is distributed through Planet Sports in India (Booth 2009; Barnes and Greenwood 2010).
Celebrity endorsements for online fashion brand selling are also common, whereby celebrity videos and snapshots can be seen on the website (Ko and Mok 2002; Booth 2009; Guardian 2010; Barnes and Greenwood 2010).
Most importantly, the biggest and most powerful trend to have taken over the online fashion retail industry is the association of the fashion retailers and fashion brands with the social media and the social networking websites that allow the fashion marketers to trigger the social influences and self-identities of the consumers who are active web users (Booth 2009).
3. Developing the E-business Model
3.1 Brief Description of the Envisaged Website
Zara is to launch the website called “Chit Chat Chic Club” specifically for its female online shoppers.It is an affordable fashion e-store for young girls, which is a virtual replication of a real fashion outlet, where the girls can search clothes; rate each other’s outfits, purchase outfits, based on opinions and likes of friends, and benefit from constant interactivity with the store and their friends.
Chit Chat Chic Club has been named, considering the specific features that the website is to offer to the users: chatting with friends, taking opinions, votes, ranks and polls, while shopping for stylish outfits.
The theme of the website is a feminine, stylish, cool and young environment, where each section is to reflect femininity and fashion interest.
The website is to have specifically, pink, black and white in its logo and website design but will also make use of other feminine colors like orange, red, brown and purple.
This will be main screen of the website, where the customers will be offered two options:
The Home will be the customer’s home page, where main activities, offers and updates will be displayed for the customer to view. The following activities will be offered for viewing at a glance:
This section will maintain demographic information of the customers. The following tabs will be displayed:
This is where the customers can display the outfits they have bought and would like to buy in future and request their friends to rate them.
This section will feature the following activities:
The consumers will make debit purchases, using the “My Bank section.” The Bank section will feature the following:
The store section will feature the following:
Regular customers, who have had a £200 purchase history in three months, since the last contest, will be eligible to apply for the contest. Selection board is the Zara’s team of in-house designers. The customers submit the outfit designs they have created to be judged and be awarded as the title. Their designs will be used in Chit Chat Chic Club’s next product line.
Customers can also take part in weekly contests, where their friends nominate them, and they nominate their friends, based on each other’s closet galleries. The following options will be open to the users:
The online store will offer the following product categories:
3.3 Operations Management for E-Business
The supply chain of Zara is integrated and company controlled from start to end. The key to its ‘fast fashion supply chain’ is complete automation and reliance on information systems or procurement, inventory management and delivery to stores (Barnes and Greenwood 2010). Figure 1, shown below, illustrates the supply chain process for its e-business operations that will be implemented for the new website.
3.3.1 Website Sales
The consumers will place orders online through the website. They will be asked to submit their choices and bank details for the purchases (Fellenstein and Wood 2000).
The process begins with the notification of latest trends, obtained from store managers, customers’ enquiries, fashion media, etc., which is, then, forwarded to the information portals, maintained by Zara that are integrated with the headquarters that are operated in Spain (Booth 2009; Barnes and Greenwood 2010). The in-house designers as soon as information is received of the trends replicate the designs into product lines for Zara. They order raw materials, 40 per cent of which are manufactured and made by the company itself (Barnes 2010).
Once the raw materials are obtained, fabric cutting takes place in a mass assembly line. The fabrics are sent to local operatives for sewing. Once these are received, they are ironed, labeled and wrapped in the in-house assembly line and are sent to the warehouse (Booth 2009; Barnes and Greenwood 2010).
In the warehouse, the products are sorted, packed and allotted in quantities specific to the stores they are to be sent, all under computerized inventory management (Kim 2005; Newman and Patel 2008).
For stores, located in Spain, trucks are used. Whereas, for stores, located elsewhere around the world, the product batches are delivered via cargo. Transit times are fast and accurate (Booth 2009; Barnes and Greenwood 2010).
3.4 Management, Evaluation and Improvement
The website features are to allow brand management to be effectively practiced. The website will be managed and evaluated, based on the following.
3.4.1 Understanding Consumer Behavior
Direct Communication with customers to obtain insights of their activities, likes, preferences and understand their shopping behavior (Eley and Tilley 2009).
3.4.2 Continuously Refining Segmentation
Customer profiles and product preferences are tracked regularly to refine segmentation.
3.4.3 Estimation of Future Demand for Sales Forecasts
Consumer polls for designer wear and product categories allow estimation of demand and can be used in placing orders for products (Booth 2009).
3.4.4 Improving Product Lines
The product lines will be continuously and regularly improved, using Zara’s existing design process and integrated e-business model. Feed from the online consumers will be taken through consumer polls, likes and preferences.
3.4.5 Direct Marketing
The website is to be linked with Zara’s main website, where the shoppers will be exposed to advertisements of the extension and will be guided to proceed to it. The website is to allow direct marketing to existing customers, and remove the need for an additional channel to communicate to the customers with latest offers, new product lines and improved services.
3.4.6 Targeted Offers
Keeping track of the purchase history of each customer, segment customers based on their shopping activity and target specific offers to them. The website can track which customers have had only one or two transactions by the near end of the month and can target promotional offers, advertise and directly interact with them to encourage purchases (Birtwhistle 2010).
3.4.7 Complete Interactivity with the Customers
From pre-purchase activities to post-purchase activities, the website features allow the company to keep in complete contact with the customers.
3.4.8 Tying the Customers to Purchase
After the first month of promotional offer, where customers can browse and use the website as they like, from the second month onwards, there is to be condition of at least three purchases a month in order to maintain the account on the website and avail services. The extra features of being nominated for contests is to be offered to regular shoppers and not those who have recently joined and not made any purchases so as to tie the consumers for making continuous purchases and repeat purchases (Birtwhistle 2010).
3.5 Customer Relationship Management
The complete track of customer profiles, activities, preferences and purchase history, is used in developing a better customer relationship management system, which has updated information of each unique customer and the information is used in developing future marketing and brand management strategies (Fellenstein and Wood 2000).
Many authors say that e-service quality is a major contributor of the successful implementation of e-CRM systems for any organization. Zikmund (2002) defined e-service quality (e-SQ) as the extent to which a website facilitates efficient and effective shopping, purchase and delivery. Zara will need to enhance its services to customers in its e-business by incorporating the following elements:
E-Service Quality has seven dimensions that form two scales. Along with the above features, the following are also recommended for Zara to incorporate in its ECRM model (Fellenstein and Wood 2000).
This includes the major elements of service such as efficiency (ability, easiness to get to and navigate a website), fulfillment (having products in stock and delivering them on time), reliability (technical functioning of a website) and privacy (assurance, regarding data sharing and security) (Zikmund 2002).
A recovery e-SQ scale
This includes responsiveness (provide appropriate data, when problems occur, online guarantees and mechanisms for handling returns), compensation and contact (speak to service agent). The lower level (what is expected) includes website responsiveness and effectiveness, and order fulfillment. The middle level (what differentiates – customer-centered service) consists of trust, customization, information and status, while at the top level (what excites – value added) includes proactive service and value-added service (Fellenstein and Wood 2000).
3.6 Information Management
Zara is to incorporate “cloud-computing” in its e-business model to manage the information, related with consumers, online retail industry, orders as well as internal company resources. According to the National Institute of Standards and Technology (NIST), Cloud computing is an information systems model that is developed for enabling conveniently, providing access to an integrated pool of tools and resources such as integrated networks, data centers, and data stores, systems applications, etc. that are a self-functioning mechanism, where minimum management and human interference is involved other than backend and end-user involvement (See Figure 2) (Fellenstein and Wood 2000).
Figure 2: Cloud Computing Conceptual Diagram (Fellenstein and Wood 2000)
Zara is to benefit considerably by entering the e-business sector, using its existing automated, fast fashion supply chain. It will add to its cost efficiency as well as allow it to benefit from acquiring maximum customer share. Zara is to use a new website called “Chit Chat Chic Club” to enter into the online industry and expand its online share. The website is to incorporate e-customer relationship management, cloud computing and an integrated website design that links each customer feed with the automated fast fashion supply chain of Zara. The proposed idea is limited to the fashion produces that the company currently produces. However, using the same e-business model the company can enter into new markets such as the household category and undertake co-branding initiatives with other online sellers.