Disruptive Business Models

According to Markides (2006), disruptive business models are tactics applied in an organization that enable it to outperform rivals in a specific sector. The transformative paradigm relies on distorting the competitive industry and convincing consumers to choose the new company over the competition (Magretta, 2012). Offering higher discounts, after-sales programs, and luxury brands are examples of disruptive market models. Such a paradigm is often abrupt, and it takes over the whole industry, leaving all market participants befuddled. During this time, such a business benefits from gaining a large client base and, as a result, more sales. Understanding why a company may perform better than its competitors may entail studying its business model and its suitability in the market.

According to Jham and Puri (2014), globalization has enabled companies to change their business strategies and to adapt to various business environments. Therefore, a corporation ought to understand its target market, their needs and changing tastes to maneuver the new inventions successfully. For instance, the fashion industry is fast changing. In that case, business owners must be willing to put in the extra time researching and studying their clientele globally to make sales (Hess, 2012). Customers no longer want an entrepreneur who is solely focused on making profits but rather desire one that meets their special needs (Hess, 2012). In this case, companies have realized that with the internet, they can allow their customers to shop online or make exchanges, which is different from the contemporary way of doing things which then have to be in person (Markides, 2006).

For instance, Wal-Mart is a good example of a company that has used a disruptive business model (Hess, 2012). Wal-Mart came into the market and introduced cheaper products while opening thousands of stores across the globe. Their concept of buying less at a lesser fee seemed to have attracted a lot of customers and this translated to the right revenues for the company within the first year of operation. Wal-Mart is arguably the biggest store globally and the largest employer with an employment capacity of over two million people globally

Sam Walton, a business graduate who established Wal-Mart, had realized the market needs within the rural population of Kansas where he was working as a merchant. However, Walton recognised the fact that people identify brands with quality. However, the customers could not afford the brand goods as they were considered too expensive for them. In that regard, Walton chose to bargain on behalf of his customers and hence enabled them to obtain their goods at a reasonable price. The entrepreneur managed to get low priced brands for the clients by purchasing them in bulk from the manufacturers and also focusing on self-service in their stores which further saved on the staffing costs for the company. The customers were responsive to Walton’s effort and hence flooded his stores allowing him to make massive profits and also expand into new territories. The fact that he had the ability to purchase the goods in high quantities also means that he could get discounts which would also be reflected in the lowly priced products. Till date, Wal-Mart focuses on offering quality products for their customers at the lowest price possible.

Southwest Airlines have also adopted a disruptive business model in their service delivery. The airline company uses the miles per route flown to ensure that customers do not have to pay for the journey that they have not yet travelled (Chesbrough, 2010). Southwest Airlines have successfully managed to take over the American Airlines, amidst the high competition from companies like British Airways, by offering great discounts for the air tickets. Chesbrough (2010) contends that the success of the airline industry is often dictated by good performance. The industry is capital intensive, and hence companies have to offer top notch services to be in operation. As a business that started as a taxi business in the airport, its main agenda was to drop and pick customers by offering low costs as compared to other taxis in the region. The company also focused on short routes that would cost them way less which would also translate to the low costs. The company has also invested in smaller jets that can fly of customers at shorter distances which also seems affordable to them. The company does not focus on offering luxuries which often translate to higher transport charges for the clients. Instead, the company focuses on obtaining customers that are in need of convenient and affordable transportation (Chesbrough, 2010). The company uses the main plane the Boeing 737 which is of low-cost maintenance and it ends up saving on the company’s expenses in the long run hence enabling them to charge affordable tickets.

A summary description of Gap’s approach to the apparel manufacturing and retail business. Gap, in this case, is a proxy for the industry business model.

Gap as a representative of the other fashion companies have implemented strategies that seem to be the standard. The company produces new cloth line twice a year during spring and fall fashion period. The clothes are showcased in the Runaways and then stocked in their representative stores. Gap uses a top-down approach where the senior executive decides on the best clothes to be manufactured and the amount of inventory needed within various shops, which is then implemented during either season. The company also makes its clothes in the third world countries where the cost of manufacturing is relatively cheap. After that, Gap ships its large inventories to warehouses close to retail outlets. The company then awaits their seasons where they then start selling. Unfortunately, the company may end up selling their products for a lower cost as some of the attired could be considered outdated. Moreover, fashion keeps on changing meaning that they do not have a high appeal to customers with changing fashion tastes. There is also a high degree of advertising for the business which is made through the media as a means of creating awareness to the public which also adds to the operation costs.

A summary description of Zara’s approach to the apparel manufacturing and retail business.

Zara disruptive approach entails coming with superior quality but at a lower price of about 15%. The company has a short time frame within which an idea is implemented. For instance, Zara designers may conceive a particular design that may seem fashionable at the current time and ensure that clothes are within the retail outlets within ten days. The speed of innovation and invention favors the versatile customers who love moving with the fashion trends. Zara, however, ensures that it releases few clothes to test the market thus saving the company on huge inventory costs that would lead from a dead stock. Notably, Zara has shied away from the top-down decision-making approach because the company understands that the employees are more inclined to understand the consumer trends. The retail brand has formed a close association with its employees thus ensuring that they also play an active part in decision making. In effect, the company has divided itself into different segments that enable the manufacturers to produce goods that move fast within the market.

Zara desires to make the shopping experience an exceptional one and a satisfying one. The company has invested highly in ensuring that they get spaces in high-end malls and cities. Further, the designers understand that personal appeal is positively correlated to the sales that a company makes. In that effect, the company ensures that it has the best window designs which not only attract the customers but also makes them repeat customers. Also, Zara has created the concept of scarcity in their company meaning that the clients buy the clothes being wary of missing them the following time. Their fashion stand hence works for the modern, sophisticated young person who wants a fresh look every time. Furthermore, the clothing empire manufactures clothes that are only wearable for a short period hence also suit the younger generation who loves going with the new trends. While the company desires to sell in large quantities, it naturally focuses on releasing few clothes then testing the market reaction.

Compare these two approaches and describe how Zara can effectively manage the core risks inherent in this industry much better than Gap.

While Gap focuses on producing large quantities of clothes twice a year, Zara regularly releases new designs, sometimes, within ten days. Zara can, therefore, manage risks inherent in the sector by ensuring that it has studied the consumer tastes before producing the clothes (Jham & Puri, 2014). The company does not only focus on making fast fashion attires but on making functional products that appeal to the clients. Also, Zara has a strong supply chain that ensures that they provide the clothes that are solely needed by the customers (Hansen, 2012). For instance, the company closely liaises with the store managers who then observe the clients’ trends. In this case, the company ensures that it only stocks fast moving goods.

Moreover, the company also avoids producing a lot of clothes that may soon become outdated. Instead, Zara provides a few samples of an individual style and releases it in the market without creating the same (Hansen, 2012). Knowing that the fashion industry is faced with so many risks, the company focuses on stocking few products in their different stalls but ensures that they are of high quality and the customer experience is top notch (Lopez& Fan,2009). The company has also avoided following a top-down approach because they understand the significant input that the junior employees can have on the success of the business. Therefore, decisions are made vertically within the firm, and even the designers have the freedom to design and release the outfit of their choice.

Discuss why Zara’s approach is disruptive to the other industry competitors, like Gap. (Hint: think about why Gap cannot use Zara’s approach).

Zara approach is disruptive to other business models because the company makes its products look superior yet cheaper than for the other companies (Hansen, 2012). For instance, the company manufactures its clothing in high-end countries which evidently take up much capital and after that stocks high-end stall with them. Moreover, Zara’s clothes are usually 15% cheaper as opposed to the other brands which also leave them on the losing end (Hansen, 2012). Zara regularly opens new stalls in different cities globally further extending their presence. Gap, on the other hand, focuses on advertising and opening up many stores as Zara but it ends up consuming more costs instead of surpassing Zara’s profits. While gap focuses on filling up their store with clothes, Zara stocks few high-quality products which are never restocked.

What Business is Zara In?

In summary, Zara Company is in the fashion retail business.

















Appendix

How Zara Becomes Successful

Design team commercials

Composed of two managers and two

Designers-free to implement any new

Dedicated staff

Design, they choose what to be

Produced, when and in what quantity.





Regional commercials- Liaise with different retailing

Shops







Store managers-only stock fast moving clothes-Observes

Consumer trends in their jurisdiction.

Happy customers







References

Chesbrough, H. (2010). Business model innovation: opportunities and barriers. Long range planning, 43(2), 354-363.

Hansen, S. (2012). How Zara grew into the world’s largest fashion retailer. The New York Times, 9.

Hess, E. (2012). Grow to Greatness: Smart Growth for Entrepreneurial Businesses. Palo Alto: Stanford University Press.

Jham, V., & Puri, S. (2014). Cases on consumer-centric marketing management. Hershey, PA: Business Science Reference.

Lopez, C., & Fan, Y. (2009). Internationalisation of the Spanish fashion brand Zara. Journal of Fashion Marketing and Management: An International Journal, 13(2), 279-296.

Magretta, J. (2012). Understanding Michael Porter: The essential guide to competition and strategy.

Markides, C. (2006). Disruptive innovation: In need of better theory. Journal of product innovation management, 23(1), 19-25.