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L7: Leveraging the Value Chain (Key Driver Identification (Learning &…
L7: Leveraging the Value Chain
Zara Case
In times of uncertainty, franchise is best as it has easy exit opportunities and low risk involement
In stable growth markets, own markets yield higher margins and lower fees
Zara's USPs
Design
Flat hierarchy, trendspotters, large variety, design team
Manufacturing
In-House manufacturing, owned production, central production, undyed production for flexibility, short supplier contracts
Vertical Integration
Merchandising
Elusion of scarcity, fashion cycles of 2 weeks, WoM Marketing, 'Made in EU', 2 sales periods only
Quick Response abilities
Management
Local country managers (no internationals),
Stores
Store managers, incentives, customer service, top locations, flow of items within store, data collection
Distribution
low inventory, 2-3 day delivery of items
Types of competitive advantage
Average competitor
Differentiated competitor
Low-cost competitor (Supermarkets, Airlines)
Dual advantage competitor (Cost cutted and acrobatics differentiation)
With competitive advantage you will be able to command higher relative price or operate at a lower relative cost, or both --> Drive wedge between buyers willingness to pay and total costs to produce
Key Value Activities
Primary activities
Inbound logistics
Operations
Outbound logistics
Sales & Marketing
Service
Support activities
Procurement
HR Management
Technology development
Firm infrastructure
Key Driver Identification
Learning & Timing
Learning can drive efficiency up and costs down
Scale
Increased scale can decrease unit costs
Capacity utilisation
Aim should be to fully exploit all capacity
Linkages & interrelationships
Policy choices
Location
Integration
Institutional factors
Generic strategies
Low Cost Strategy (Threats)
Inferior product quality
Rivals adopt newer, lower cost production technologies
Risks of outsourcing production to low-cost countries
Differentiation (Threats)
Buyers do not perceive differentiation
Cost of differentiation does not meet buyer's willigness to pay
Imitation from competition
Take aways Zara
Tight integration of activities and not response time per se
Linking value chain activities to cost and differentiation drivers to understand sources of competitive advantage
Zara
Tackling paradoxes: Global vs staying home
Flexibility by commitment and integration
Performs well even when starting base is barren location and home country is economically struggling