Market expansion strategies entail the various marketing methods that businesses use to introduce and sell their products in the international markets. Therefore, retailers who need to expand in the global markets need to use effective and sustainable expansion strategies both in the short and medium term. While there are many expansion methods, retailers need to evaluate the best strategies to implement and select a play that is feasible for future business internalization. Market expansion opportunities for year-on-year growth are difficult. Retailers cannot just snap their fingers and instantly increase sales. Instead, retailers have to critically evaluate the market position of their business and the possibility of using business expansion methods that give them opportunities to sell more products to many customers. Hence, market expansion strategies need to help a business determine the best way to sell products to more customers (Kotler and Keller, Pg. 35).
For purposes of illustrating this paper, this analysis will use Zara Retailer as a case study. The firm will form the basis in evaluating various market expansion strategies and their success in effectively taking the organization’s products into international markets. Zara is a Spanish fashion and luxury clothing and accessory company that is based in Arteixo Galicia, Spain. The firm was started in 1975 by Rosalio Mera and Amancio Ortega. The company has since grown to be a significant player in the world apparel industry that retails its various clothing brands in the global markets. As of 2017, the firm managed over twenty clothing collections. The expansion strategy of the company started in 1988 when the company expanded its product to the neighboring country Portugal in the city of Porto. The firm then extended to the US, countries in Europe, Asia, Africa, and South America among others. The firm has since been successful in most of these markets and has emerged a leading brand in the global apparel industry. Some of the expansion strategies currently used by the firm include flagship stores in those markets, franchising, and use of internet marketing and electronic commerce.
Evaluation of international market expansion methods used by the company
As noted above, Zara retailers use various global expansion strategies that include the following: opening of flagship in the international markets, use of franchising model and use of internet marketing. These marketing strategies are evaluated as follows.
A flagship store entails a store at the retailer’s primary location in the international markets. For example in the international expansion strategy by the firm, its flagship stores are located in a prominent location mainly mega shopping malls that are frequented by high net worth customers. The flagship stores are large in size to hold and sell the most significant volume of merchandize. Such locations are also the retailers most known location in an international market for instance. The flagship store is usually the first retail outlet of the firm in the international market. The store location has a merchandise mix, and décor that is distinct from other stores and the tore usually carries high-priced merchandise for upscale customers (Kotler and Keller, Pg. 120).
Use of flagship store as an international market expansion strategy is useful in the contemporary marketing environment that is increasingly becoming inherently competitive and dynamic. For example, use of flagship stores enables retailers to constantly adapt marketing and communication instruments for their brands that favor their customers at their points of sale. Through flagship stores, firms can market their brand to the target market. Hence, flagship stores allow businesses to form a distinctive recognition and perception about the brand in the mind of target customer’s relatives to what competitors offer. Flagship stores give retailers opportunities to provide an extraordinary display of brands through story-telling, in-store display and attractions, entertainment, giving brand and product information and an exceptional assortment of product variety (Kotler and Keller, Pg. 130).
Despite the above benefits of use of flagship stores for international market expansion, they have the following challenges. Firms intending to use this strategy should critically evaluate if its future use is sustainable for mundane brands and how the strategy can be utilized to create an experiential and enjoyable marketing environment. Firms should also gauge the learning process of customers while using flagship stores and the cost implications of operating such stores and their bottom-line on the profitability of such ventures (Marshall and Johnston, Pg. 77).
Franchising is a form of international business expansion method whereby a firm licenses another organization usually a third party to market its products in a market. The licensing company in this case the franchisor leases both tangible and intangible property and instruments that the franchisee agrees use to conduct business. The franchisee then pays loyalties to the franchisor in addition to the initial fees for rights to do business.
Franchising has emerged as an important international marketing expansion strategy in the recent years. The strategy is used by most business because it does not require much of the retailing companies; rather, companies in the intended markets that have structures and market information are given opportunities to do business on behalf of the retailing company. This alleviates much uncertainity from the market, legal, political, capital and infrastructural risks that a new company may face in a new market. This makes franchises to effectively reduce the risk of business failure in new markets. For instance, before setting up a franchise in the international markets, the business my first evaluate how successful existing ones in the industry are. Franchises also allow firms to enjoy the benefits of an established market share. This removes the risks of having to test the market first to determine the viability of the performance of the brand. Firms may also use recognized brands to introduce their products which save on promotion costs. Other benefits include franchisee support, business leverage, exclusive rights and relationship management in the value chain system of the brand.
The franchising model also suffers a number of challenges that include the following. Costs of running franchise shops may be higher than expected. These costs include initial costs, management service fees. Franchise agreements also have restrictions that limit the leverage to run the business by a retailer to suit the international market needs. Some franchisees may go out of business or give the brand a bad reputation. Franchise profits are also shared which makes the method not effective in optimizing on international market opportunities. (Marshall and Johnston, Pg. 86).
Internet marketing is the use of the internet and electronic commerce to conduct business. Through the use of internet, businesses have created website and online market links through which customers from any part of the world view their product and services, make orders and payments through electronic commerce before products are shipped to them. Developments in information technology transport and communication has reduced the world into a global village. For example, a customer in Kenya may order for a product marketed by the firm, pay for it using online means and the product is delivered in just three hours from South Africa, fifteen hours from washing ton DC or four hours from the United Kingdom among other markets. Internet sales have made it possible for firms to have virtual shops through which they sell products to customers from any location in the world (Hu, et al. Pg. 57).
The benefits of internet sales include its increasing opportunities to access and use of the internet by the global populace. The method has also proved effective for contemporary customers. The global financial and money transfer system has also come of age and payments are made and received in real-time. Firms don’t need substantial resources to create physical locations such as flagship shops and franchises to get into new markets. The method is also least affected by political, legal and other restrictions in international markets. Some of the challenges by this method include its lack of conventional customer experience at the shop, security challenges for online transactions and the need to have a physical presence (Cateora, Pg. 103).
International business expansion is a sure strategy for most business because of competition and reducing market opportunities in local markets. This analysis evaluated three international market expansion methods namely flagship stores, franchising and internet selling. A critical evaluation of the above methods has been done in the preceding paragraphs. However, for the future of fashion retail internationalization, internet selling is considered to be the most important driver of future sales and growth opportunities. Internet selling and the use of electronic commerce offer opportunities in many areas that determine the success of contemporary businesses. Internet selling allows knowledge-based investments that offer creative ways for running businesses. They also allow alliance-based investments that enhance the existing competitive position and increase aggregate sales productivity in the international markets.
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Hu, Z., In Hu, Z., In Chen, X., & In Yang, Z. (2017). Research frontiers on the international marketing strategies of Chinese brands.
Kotler, P., & Keller, K. L. (2016). Marketing management.
Marshall, G. W., & Johnston, M. W. (2019). Marketing management.