Branding Strategies Employed by Zara & H&M in The United Kingdom

This section of the dissertation details the results of the study undertaken on the branding strategies employed by Zara and H&M in the United Kingdom. The branding strategies and the impact of branding in organisations in the United Kingdom with a focus on Zara and H&M are presented. Also detailed is a review of the branding strategies used by Zara and H&M, the impact of these strategies, the financial position of these two companies, and the relationship with the stakeholders in terms of perception and loyalty. The study utilizes both qualitative and qualitative data from secondary sources. Conclusions that emerge from the findings are provided at the end of the section, which will form the basis of recommendations for the UK retail industry.

Branding strategies used by Zara and H&M

Branding strategies used by Zara

Zara uses social media as the main platform for communicating with the customers. The company has highly leveraged the role of technology in meeting its goals of reaching the customer while providing a memorable experience. Palmatier et al. (2016, p. 426) describes Zara as a company that has leveraged on technology to achieve global success. Zara serves the fast fashion industry selling latest stylish clothing online and in brick and mortar stores. The two companies have managed to create strong brands allowing them to spread fast to new regions with the increased online purchases by consumers in recent decades. High quality, low price, and fashionable designs are the selling points for both Zara and H&M. Zara and H&M have taken a geocentric view in the expansion strategies to ensure the stores and product offering meet the needs of the local population and conform to their cultures (Ozuem and Azemi, 2017, p. 77). Both companies recognise the importance of cultural and ethical awareness for success in the international market.

Despite operating in the same industry, Zara and H&M have cut different brand positions for themselves. Zara focuses on producing fashion items such as Chanel and LV faster and delivering to the consumer even before the high-end sellers themselves. H&M designs street fashion with the options provided by the company fit for daily use (Ozuem and Azemi, 2017, p. 77). The effects are that the two companies have different pricing strategies. Zara prices its products higher and offer limited discounts for the customers while H&M sets low prices and offers many discounts.

Short lead time for fashion products is a major competitive platform for Zara. The company has achieved lower lead times to six weeks and two to three weeks for hot selling items, which other companies with lead times of over 18 weeks cannot replicate; resulting in competitive advantage (Fisher & Raman, 2010, p. 106). Short lead time allows Zara to react quickly to changing trends and meet changing customer needs. The company achieves the highly reduced lead time by having many designers working on the original and sketches of styles from international fashion shows and production of these undertaken and delivered to stores within six weeks. Zara creates styles based on runway fashion and the prototypes developed fast and approved (Gong, 2015, p. 127). The company then orders limited quantities of the clothing and delivers them to stores. The fast response by Zara is customer driven and requires supplies and the company to utilise technology and flexible engineering to reduce efficiencies from the supply chain and provide the right good, at the right time and in the right place (Choi, 2013, p. 30). Zara’s communication strategy is mostly word of mouth and real estate. According to IRMA (2017, p. 110), word of mouth advertising at Zara relies on the influence of groups, family, and relatives on consume decision-making. This means the company relies on stores and referrals by satisfied customers to communicate with its target market with a focus on high publicity when the company opens new stores. The design of the stores and feel within the stores also serve to promote the brand. According to De la Cruz Iglesias (2009, p. 17), Zara sets up its stores to convey luxurious stature despite being in the middle-prized category. The reason is that store windows for the company are major advertising platform. Frequent refreshing of displays and dramatic presentation helps create consumer interest and discussion hence success in marketing (De la Cruz Iglesias, 2009, p. 17). Kaufman (2014, p. 109) quotes Zara’s advertising budget at 0.5 of annual sales revenue while the amount that could have been paid to commercials and other advsetising options used to reinforce the company’s identity as a company that seeks to bring about democracy in fashion. Zara prides itself as a high quality fashion brand at affordable prices for the consumers. The provision of excellent customer service, memorable store experience, and faster design delivery are other aspects of Zara’s branding strategy that have allowed the brand to flourish globally.

Branding strategies used by H&M

H&M uses social media to reach its global customers and engages them more often that Zara does. The company makes regular updates and informs customers of new product offering allowing for an engaged and satisfied fan base. Technology is one of the main drivers of H&M business strategy with communication done through social media and in traditional media channels including television and radio. The company uses data analytics to predict consumer tastes and preferences from data collected in its stores and on social media. The stores aid in coming up with latest designs and fashion items within a short time. H&M has improved in recent years to respond quickly to customer demand and introduce new designs within two weeks. H&M employs more than 100 designers at its Stockholm headquarters tasked with the analysis and translation of trends into products (Peterson, 2014, par. 2). Another 400 designers are involved in extending the product to meet different events and needs including casual and formal wear. The company then determines inventory levels, make orders from 20 sourcing offices, and finished products shipped to distribution centres and finally to the stores (Peterson, 2014, par. 4).

H&M utilises print media and television commercials to communicate with its target market causing a huge difference between the advertising costs of the two companies and the reach of advertising also differs greatly. Imagery and emotion is common in H&M advertising, which devotes “5 % of its revenues to advertising” which is high compared to Zara’s 0.5 % (Kumar, 2007, p. 69). H&M advertisements feature high profile celebrities including Pamela Anderson, Johnny Depp, Jerry, Hall, and lately Karl Magerfeld and Stella McCartney (Kumar, 2007, p. 69). The celebrity endorsements of the brand create discussions and interest from them customers. H&M depicts itself as a provider of high quality durable products of best designs for everyday use evidenced by its low pricing strategy.

Impact of branding strategies used by UK retailers

The effect of branding strategies used by Zara and H&M has been an ability of the companies to compete effectively globally. Zara and H&M have gained widespread global recognition and consumers prefer these companies because they can relate to the messages on different communication platforms. The success of Zara’s branding strategy includes being named among the world’s best brands. The company was ranked 30th in Interbrand’s best global brands in 2015. Zara has managed to meet the needs of many consumers as evidenced by its monumental growth and continued performance despite other retailers struggling. In 2017, Zara led to the growth of its parent firm Inditex SA by 13 % while H&M’s stocks fell 16 % to an all-time low and announced plans to close stores (Mullier, 2017, par. 4). H&M has succeeded despite recent struggles, which can be attributed to the success of Zara. The company has continued to grow and still expands to China and other regions. In 2014, the company was the second largest retailer globally; a testament of its success (Peterson, 2014, par. 1).

The brand strategies of the two companies have also led to increased competition in the fast fashion industry with new entrants having to be more cost-effective and competitive. Zara has revolutionalised the fast fashion industry by changing how the players relate to the consumer especially on stock replenishing and customer service. H&M realised the need for improved online presence to compete well hence made huge capital investments in improving its online presence. Zara’s strategy is evidently a disruption in the market that has allowed other companies to either be more efficient and compete or close down to avoid making losses. The companies that have a strong branding strategy succeed in meeting its goals in the market. According to Carroll (2012, par. 6), the data data-informed and design-driven development of brand narratives by both Zara and H&M have allowed the companies to find a good solution for consumers demand and in the process benefit from good market position regarding high sales and profitability.

Financial Brand Equity

Zara financial brand equity

Data from Interbrand.com shows Zara has been growing continuously in recent years. The company has almost tripled its brand value in seven years from $7,468 million in 2010 to a current value of $18,673 million (Interbrand, 2018 and Jones, 2014). The table below presents the growth of Zara’s brand value and an associated graph showing Zara’s brand value growth from 2010 to 2017.

Year

Zara Brand Value ($M)

2010

7,468

2011

8,065

2012

9,488

2013

10,821

2014

12,126

2015

14,031

2016

16,766

2017

18,573

Retrieved from Interbrand.com

H&M financial brand equity

H&M’s brand value performance has not been growing consistently in recent years. The company has faced hurdles evidenced by stagnation, slight rise, and recent decline of its brand value. H&M’s brand value stagnated between 2010 and 2012, rose at a declining rate between 2012 and 2016 and started falling such that in 2017 its brand value is lower than in 2014. The fall in H&M’s brand value is so drastic that it could be lower than Zara’s if it falls at the same rate for a year. H&M’s brand value changes are represented in the table and graph below.

Year

H&M Brand Value ($M)

2010

16,136

2011

16,459

2012

16,571

2013

18,168

2014

21,083

2015

22,222

2016

22,681

2017

20,488

Retrieved from Interbrand.com

Graphical comparison of H&M and Zara financial value in the last five years

Year

Zara Brand Value

H&M Brand Value (&M)

2010

7,468

16,136

2011

8,065

16,459

2012

9,488

16,571

2013

10,821

18,168

2014

12,126

21,083

2015

14,031

22,222

2016

16,766

22,681

2017

18,573

20,488

Retrieved from Interbrand.com

Data Source: Interbrand.com

A comparison of the brand value of H&M and Zara is provided in the following graph from 2010 to 2017. The graph clearly shows recent performance of Zara and H&M on brand value with the two lines set to meet if Zara’s performance continues while H&M’s falls (Interbrand, 2018).

Zara and H&M have performed considerably well over the years with consistent profits and revenue generation. The performance of Inditex, Zara’s parent company, and H&M has been great with strong margin performance over the last five years. Inditex had a gross margin of 59 % and net margins of around 14 % while H&M had equivalent margins of 60.5 % and net margins of over 15 % (Byrne, 2014, par. 2).

Consumer brand equity

Fetscherin and Heilmann (2015, n.d.) define consumer brand equity as the “set of assets and liabilities linked to a brand’s name and symbol that adds to or subtracts from the value provided by a product or service to a firm and/or that firm’s customers.” Brand customer equity encompasses several aspects including customer brand perception, brand worth or value, performance, social image, commitment, and trustworthiness. Consumer brand equity in relation to Zara and H&M are discussed in the following sections with a focus on brand perception, worth, and loyalty. The sections reviewed underpin other aspects of customer brand equity including social image, credibility, trustworthiness, commitment, sustainability, and social responsibility.

Brand association

These are the aspects that connect the brand to the customer. Zara and H&M take steps that are aimed at creating positive associations with the customer and deliver value through high sales. These undertakings include creating effective e-commerce platforms for customers to shop, virtual try, and make order at the comfort of their homes. The effect is customers associate the brand with comfort and efficiency. H&M and Zara regularly presenting sustainability reports create associations of responsibility and environmentally conscious brands. The associations of memorable experiences and innovation are created through store designs, virtual dressing rooms, and excellent customer service. H&M and Zara understand and take measures to create positive brand associations that help in improving the sales potential.

Perceived Quality

This reflects the perception of the consumer on the relative quality of a given brand. Zara presents itself as a high quality affordable fashion in the eyes of the consumers. H&M presents itself as an affordable everyday use product available for all including celebrities through its celebrity endorsements. The consumers perceive Zara as highly priced compared with competing products like H&M. The consumers consider H&M as affordable and well-priced considering the quality and focus of the brand. It is evident that both brands have a positive perceived quality that allows them to succeed in the market.

Brand worth

The success of branding efforts in by Zara and H&M has led the brands to be considered among the highest valued brands in the world. Zara was named the second most valuable brand in the Apparel industry valued at $25.2 billion after Nike ($37.5 billion) while H&M ranked third at $12.7 U.S. Billions (Zaczkiewizc, 2016, par. 2). The success of Zara in the market has seen the sales and profits of Inditex, to which Zara contributes three-quarters of sales, tripled since the initial public offering in 2001 and doubled the number of stores for its eight brands (Peng, 2013, p. 63). IMRA (2017, p. 111) provides Zara’s estimated brand value of 20.167 billion stating that it is “27.5 % more than the value of Nike Swoosh and 58 % more than the H&M brand.”

Measuring brand Loyalty of Zara & H&M

Brand awareness is very high for H&M and Zara with a strong social media presence and engaging customer communication (Ozuem & Azemi, 2017, p. 78). H&M utilises both social media and traditional communication channels to engage its clients and create awareness while Zara focuses on stores and social media interaction. Zara has a huge fan following considered among the most valuable on social media especially Facebook and these customers look forward to product releases to make purchases (Gamboa, A. M., & Gonçalves, 2014, 716). They present a high-value loyal customer base that ensures Zara is committed to providing better quality and considers customer feedback in the development of its products. Gamboa and Goncalves (2014, 716) demonstrate the importance of customer satisfaction in the achievement of high client satisfaction using the example of Zara’s strong social media presence that creates many dividends. H&M utilises social media uniquely through campaigns including HM Loves that allow the customers to generate design inspirations and consumer generated insights. H&M also seeks customer insight from selfies and has designated prominent individuals and bloggers as ambassadors in each state allowing the firm to enter new markets and gain brand recognition (Ozuem & Azemi, 2017, p. 71).

Shoppers are willing to buy products from Zara and H&M. Loyal customers wait for new products release and flock the shops to make purchases. The limited fashion products offered by Zara means patrons are willing to make purchases when they visit the store or else they won’t find the clothes when they come back another time. The possibility of finding another trendy item every time makes them want to come back after every purchase increases the company’s return sales. Zara also focus on providing the customers unique customer experiences that make them wish to come back. Zara is very innovative in meeting the needs of the customers and providing an excellent store experience (Dahlen et al, 2010, p. 123). Repeat sales at H&M are driven by the belief of high-quality products at affordable price hence the consumers make repeated visits and make purchases. However, when other companies provide similar products at affordable price, the consumers switch loyalty.

Brand Loyalty of Zara and H&M

Brand loyalty is one of the main aims any company wishes to achieve to be certain of sales both in the short run and long run. The focus of creating a strong brand by retail companies is on ensuring the brand creates a strong band of loyal customers always supportive for the company. Zara and H&M have managed to create a strong base of loyal customers. Zara has a “compound annual growth rate of approximately 20 % mainly due to retaining loyal customers” (Petro, 2013, par. 13). The loyal consumers even determine the strategic decisions made by the company including the stores to open. Zara spokesperson, Jesus Echevarria, stated they needed to “dialogue with the customers and learn from them” in response to the stores to open (Petro, 2013, par. 14). Levine (2013, par. 5) also asserts that Zara has effectively learned to put the customer in control in business decision-making that has allowed the company to create a large customer following and loyalty. The high customer loyalty is attributed to listening to the customer, convenience in store location, and high product quality offering. Customer loyalty at Zara has also been attributed to the quick response to customer feedback transmitted daily to head office and for the development of new designs and presented in stores within a short time (Levine, 2013, par. 7). Constant service and product changes and location in high-street areas has assured H&M a steady stream of loyal customers that are critical for the success of the company’s loyalty model (Ozuem and Azemi 2017, 67).

Comparison of brand loyalty

Zara and H&M have achieved tremendous success over the years in the fast fashion industry. Customers are very loyal to Zara and H&M despite high affinity for Zara products that are considered more trendy and unique. Key aspects that have aided the two companies achieve high levels of followership include:

Fast product introduction: Zara and H&M have consistently proven effective in developing and introducing new designs to the market. The styles are created to meet market demand and sustain consumer interests in the products of the two companies.

Clear discounting strategy: Zara and H&M have different discounting strategies owing to different target use for their products. Zara offers limited discounting of its trendier and stylish products while H&M provide huge discounts at times even 50 % on products aimed for everyday use. Currently H&M are offering a 14 % discount on the products displayed on the website while Zara does not have any discounts at the moment (H&M). The discounting strategies relate with the consumer segments served allowing both companies to achieve its goals of high customer loyalty.

Brand identity communication: H&M effectively utilises magazine style imagery in its online displays and communicates the quality and style of its products. Zara utilises starker email to communicate with clients and emphasis a unique store experience and excellent product quality.

Pricing: both companies have effectively determined product prices that meet the customer needs while ensuring affordability and value is delivered. H&M sets lower prices than Zara to coincide with its everyday use of its product offering. On the H&M website, the products offered have lowest price of 0.80 Euros and highest price of £ 234 while Zara has the lowest price at four Euros and highest price at £ 259 (H&M, 2018, and Zara, 2018).

Zara performs better than H&M on customer loyalty owing to the strong brand value of the company. This is because of a strong association between a strong brand and loyalty and customer satisfaction (IRMA, 2017, p. 111). Zara’s clients are loyal and make continued visits all year with an average customer visiting Zara 17 times compared to only four for other stores (Kapooria, 2017, p. 127).

Comparison of market performance of H&M, Zara, and other fashion brands

H&M, Zara, Uniqlo, Louis Vuitton, and Hermes are the renowned fashion brands around the globe. In 2016, Louis Vuitton was the leading fashion brand with $23,998 million, H&M followed with $22,681 million, and Zara with $16,766 million (Sawyer, 2016, par. 2). Hermes was ranked fourth with $12,833 million. Uniqlo did not feature among the top eleven fashion brands. The criteria used in ranking these brands included “analysing the financial performance, the ability to create loyalty, and power that the brand’s name has” (Sawyer, 2016, par. 4). Contrary to Sawyer’s argument, many authors site Uniqlo, Zara, and H&M as leading firms in fast fashion. Some of the factors that influence their success in the international market include expansion of their networks.

Logistics is the main focus for Zara while H&M and Uniqlo, on the other hand, focus on prices and consumer experience respectively. Zara and H&M also pay attention to sustainability. Unlike the two, Uniqlo does not consider sustainability as a fundamental aspect. It is a vision that a person understands the plans of a company; it shows the plans of an organisation. “Whereas Zara focuses on logistics by offering products at the same time, H&M highlights the importance of the future generation” in their product provision (Elizaga, 2016, p. 59). Contrary to what Zara and H&M do, Uniqlo is mainly concerned with the customers’ lives since it develops brands based on what the society wants.

A close look at these companies’ values shows that Zara is the only company with values relating to sustainability and environment conservation. H&M centres mainly on the best labour practices whereas Uniqlo seeks to creat a good environment for employees and lasting impression on the customers. In addition to this, Uniqlo introduced the notion of conducting daily activities ethically (Elizaga, 2016, p. 60). The call for sustainability in the planet to some extent influence the way these companies work. For instance, Zara and H&M regularly send messages on sustainability claiming that their products are friendly to the environment and they provide the best working conditions for their employees. Uniqlo’s focus is mainly on customer satisfaction and not on sustainability.

The financial status of the three companies has been improving since 2007. However, H&M has been featuring among the top-selling companies from 2007 competing with Inditex. Although the sales of Uniqlo are lower when compared with its competitors, the trend in the market shows that it is going to feature among the Fast Fashion brands in Europe. When considering the number of stores for each company in the globe, one notes that H&M leads with over 3,000 stores (Elizaga, 2016, p. 63). Uniqlo has the least number of stores, evidencing its lower sales when compared with its competitors. The three companies also had different kinds of designs. The European companies, Zara and H&M, get ideas for their clothes from various strategies including watching street styles. Zara also gets ideas from weekly reports from its stores. H&M, on the other hand, communicates constantly with sourcing centres on the required changes. Uniqlo, Japanese Company, employs a unique strategy. Its designers are located in major fashion cities such as “Paris, London, and New York where they receive motivation for new products” (Elizaga, 2016, p. 52).

Summary

The analysis shows that Zara and H&M have effectively managed to use branding strategies that resonate with their target market. The companies have performed well over the years and created a community of satisfied clients who look up to the two companies for quality fashion products. Zara has mainly focused on delivery fast fashion products within a very short time charging a higher price while ensuring the greatest customer experience. Zara also uses social media and in-store advertising as main communication channels in with the customers. H&M has had to play catch up regarding faster replenishment of new products in its stores and in addition to social media, it uses traditional communication channels. H&M provides everyday fashion items for the consumers at affordable prices and engages customers on social media on a frequent basis. Despite a focus on different market segments and utilisation of slightly different strategies, Zara and H&M have achieved success in engaging the consumer and meeting their fashion goals. Social media marketing, quality, fashion, focus on target customer base, and customer-centric operation are some of the most effective branding strategies that have delivered valued and success to Zara and H&M. Zara and H&M have managed to create a loyal customer base who expect high quality affordable fashion products. In recent years, Zara has performed better than H&M with higher brand value growth rates and consistent improvements. H&,M has seen a slower rise in brand value and a fall in the last year. The impact of the growth could see Zara surpass H&M’s brand value. It is evident that both companies brand strategies are successful in reaching the consumers and is translated to sales and high levels of loyalty.

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