August 2016 Edition of BEACON, A Monthly Newsletter by SIMCON. Inside this issue: About Us Our Team INDUSTRY ANALYSIS : Information Technology Brand Analysis: Omega Case Study Analysis: Zara Concept of the month: Product Portfolio

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Contents
ABOUT US
OUR TEAM
INDUSTRY ANALYSIS
BRAND ANALYSIS
CASE ANALYSIS
CONCEPT OF THE MONTH

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OUR PRESENCE
ABOUT US
VISION
The SIMCON - SIMSREE consulting club is an
initiative started in 2012 for those students in
pursuit of excellence in management consulting
and strategic management. Aimed at creating
awareness among the students about consultancy
as a discipline, the club strives to maintain strong
relations with top consultancy firms and provide
platform to craft highly skilled & competent
consultants from SIMSREE. The club is a resource
for information about consulting and a place for
students to obtain real-world consulting experience.
SIMCON provides an avenue of interaction among
faculty, students and alumni through competitions,
live projects, guest lectures, and conclaves. For
this purpose the club has also been publishing its
monthlynewsletter– BEACON (BE A CONSULTANT)
and maintains a FACEBOOK PAGE where latest
news and development in the consulting industry
are posted.
MISSION
To create awareness amongst the students
about consulting industry & its latest trends.
To maintain strong relations with top
consultancy firms.
To provide platform to craft highly skilled &
competent consultants from SIMSREE.
To provide exposure to students via
competitions, live projects, guest lectures &
conclaves.
Contributions invited:
To make this feature a successful effort, we seek continued involvement and contribution from our readers, that is YOU. We
invite articles, research papers, and trivia on themes related to consulting. Be it industry news, consulting trends, a joke, a
cartoon or feedback, we are eager to hear from you. So go ahead, do your research, pen down your thoughts and mail your
entries to simcon.simsree@gmail.com.
Best Regards,
SIMCON - SIMSREE CONSULTING CLUB

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OUR TEAM
ARPIT agrawal
ASHAYDHURI
HUZEFABODABHAIWALA
KARANCHOPRA
NAMANCHANDAK
praCHIKORE
SARANGKULKARNI
YOGESHMOHATA

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OUR TEAM
Aditya Singhal
JaspritTaneja
Apurva GHUtukade
MangeshLavte
Niranjan Satam
priyanka hegde
Swapnesh sawant
vidhiThakker

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INFORMATION TECHNOLOGY
INDUSTRY ANALYSIS

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Industry Overview
IT industry is one of the largest industries in India in
terms of market size. IT industry in India has grown
after the year 1991 i.e. post liberalization. Indian
software exports have grown at an annual average rate
of more than 50% since 1991. The most important
resource required for this industry is nothing but
the manpower. In India, IT industry employs more
than 10 million people. Another reason behind this
huge growth of IT industry is ‘cost competitiveness in
providing IT services. India can provide IT services
at a rate which is 3 to 4 times cheaper than the rate in
USA.
GDP Contribution Of IT Industry In 2015-16
India is always dominated by service sector when it
comes to GDP contribution. Following is the GDP
contribution by IT industry in the year 2015-16
Structure Of IT Industry In India
There are 4 major categories which come under IT
industry and they are as follows
IT Services
IT Services is a major part of IT industry in India. IT
services include client, server and web based services.
Opportunities in the IT services sector exist in the
areas of consulting services, management services,
internet services and application maintenance. IT
Services are used by number users and these are as
follows
Government
Banking
Financial services
Retail and distribution
Manufacturing
IT Enabled Services
Extensive use of information and technology is done
by many services. These services are categorized as IT-
enabled services. The IT enabled services is the most
important contributor to the growth of the IT industry
of India. Some of the important services covered by
the ITES sector in India are
Customer-interaction services including call-centers
Back-office services
Data entry and data conversion
HR services
Content development and animation
Remote education
Data search
Geographic Information Systems
Market research
Software Products
Software products are among the most highly exported
products from India. The software industry in India
started in the 1970s and grew at a significant rate in
the last ten years. Between 1996-1997 and 2002-2003,
the Indian software industry grew more than five
times from 2630 crores to 13200 crores. During the
same period software and service exports from India
grew by almost 12 times.
Hardware
The hardware sector of the IT industry focuses on the
manufacturing and assembling of computer hardware.
The consumption of computer hardware is high in
the domestic market. Due to the rise in the number
of IT companies, sales of desktops, laptops, servers,
routers, etc have been on the rise in recent years. Many
domestic and multi-national; companies have invested
in the computer hardware market in India.
Market Size

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Another categorization in the structure of India's IT
industry is related to the market. There are two major
market classifications - the domestic market and the
export market. The export market, dominates the IT
industry accounting for 75% of the revenue.
As we can see, IT industry has grown tremendously
overtheyears.ITindustryhasgrownataCompounded
Annual Growth Rate of 12.51%. If we look at the CAGR
of exports, it is 12.21% whereas CAGR of domestic
market is 13.15%. This shows that, though exports
are high in absolute numbers, domestic market is also
growing at a rate which is better than exports. So, we
can say domestic market also has a growth potential
and can grow in tandem with the exports.
Majority of the companies in this industry have strong
dependence on exports so currency rate plays an
important role for these companies. If Rupee becomes
weak against USD then this scenario is beneficial for
IT companies as they generate more income in Rupee
terms for same amount of work.
Major Players
Tata Consultancy Services
TCS was founded in the year 1968 by Mr. J. R. D. Tata.
TCS is an information technology services, consulting
and business solutions company, servicing large global
corporations across a range of industry verticals
including banking, financial services & insurance,
retail & consumer packaged goods (CPG), telecom,
media & entertainment, manufacturing, hi-tech, life
sciences & healthcare, energy resources & utilities,
travel, transportation & hospitality and government
sectors. TCS has the highest market capitalization than
any other company in India and it is Rs. 502,202.97
Crores.
Infosys
Infosys was founded in the year 1981 by 7 founders.
One of the founders was Mr. N. R. Narayana Murthy.
It is an Indian multinational corporation that provides
business consulting, information technology and
outsourcing services. It is headquartered in Bangalore,
Karnataka. It is the second largest IT services company
by 2016 revenues. Current market capitalization of the
company is Rs. 239,111.94 Crores.
Wipro
Wipro was founded in the year 1945 by Mr. Mohamed
Hasham Premji. Formerly it was known as Western
India Palm Refined Oils (WIPRO) Limited. Now it is
known as Western India Products (WIPRO) Limited.
It is an Indian Information Technology Services
Corporation headquartered in Bangalore, Karnataka.
Current Market Capitalization of the company is Rs.
118,890.08 Crores.
Tech Mahindra
Tech Mahindra was founded in the year 1986 by Mr.
Anand Mahindra. Tech Mahindra Limited is an Indian
multinational provider of Information Technology,
networking technology solutions and business process
outsourcing to the telecommunications industry. It is
headquartered in Pune, Maharashtra. Current Market
Capitalization of Tech Mahindra is Rs. 44,979.35
Crores.
HCL Tech
HCL Technologies Limited was founded in the year
1976 by Arjun Malhotra and Shiv Nadar. It is a
subsidiary of HCL Enterprise. It was a Research and
Development company in early days but it shifted to
software services industry in 1991. HCL technologies
Limited offers services like IT consulting, enterprise
transformation, remote infrastructure management,
Engineering and R&D and Business Process
Outsourcing. Current market capitalization of the
company is Rs.109,156.72 crores.
Government Initiatives
1. Mr Ravi Shakar Prasad, Minister of
Communication and Information Technology,
announcedplantoincreasethenumberofcommon
service centres or e-Seva centres from 150,000
to 250,000 to encourage and enable village level
entrepreneurs to interact with national experts.
These experts can provide them guidance, besides
serving as a e-services distribution point.
2. Department of Electronics & Information
Technology and M/s Canbank Venture Capital
Fund Limited are planning to launch a fund called
‘Electronics Development Fund’. This fund will be
‘fund of funds’ i.e. this fund will invest in several
funds and these funds will provide risk capital to
companies which are developing new technologies.
3. Government of India is planning to develop five
incubation centres for 'Internet of Things' (IoT)
start-ups, as a part of Prime Minister Mr Narendra
Modi's Digital India and Startup India campaign,
with at least two centres to be set up in rural areas
to develop solutions for smart agriculture
4. The Government of India has launched the Digital
India program to provide several government
services to the people using IT and to integrate the
government departments and the people of India.
The adoption of key technologies across sectors
spurred by the 'Digital India Initiative' could help
boost India's Gross Domestic Product (GDP) by
US$ 550 billion to US$ 1 trillion by 2025.
5. The Department of Electronics and Information
Technology (DeitY) plans to start a digital literacy
program, aimed at training over six crore Indians

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in the next three years to empower them for digital
inclusion.
6. India and the US have agreed to jointly explore
opportunities for collaboration on implementing
India's ambitious Rs 1.13 trillion (US$ 16.58
billion) ‘Digital India Initiative’. The two sides
also agreed to hold the US-India Information
and Communication Technology (ICT) Working
Group in India later this year.
Recent Acquisitions
Tech Mahindra Acquires The BIO Agency Limited
Tech Mahindra which is technology service provider
has acquired UK-based digital transformation firm
BIO agency limited. The acquisition was carried out
in an all-cash deal for an enterprise value of up to
45 million pounds. Tech Mahindra acquired 100%
shares of the company. The acquisition will also help
The BIO Agency to make sizable inroads into the
telecommunications and enterprise clients of Tech
Mahindra
Cognizant Acquires Idea Couture
Cognizant which is also a technology service provider
has announced the acquisition of Idea couture. Idea
Couture is a privately held firm that offers a broad
range of digital innovation, strategy, design and
technology services. Idea Couture will become a part
of Cognizant Digital Works specializes in designing
and prototyping products, services and business
models that take advantage of latest technologies.
Future Outlook
1. India is the topmost offshoring destination for
IT companies across the world. It companies
have proven their capabilities in delivering both
on-shore and off-shore services to global clients,
emerging technologies now offer an entire new
gamut of opportunities for top IT firms in India.
2. Social, Mobility, Analytics and Cloud (SMAC)
are collectively expected to offer a US$ 1 trillion
opportunity. Cloud represents the largest
opportunity under SMAC, increasing at a CAGR
of approximately 30 per cent to around US$ 650-
700 billion by 2020. The social media is the second
most lucrative segment for IT firms, offering a US$
250 billion market opportunity by 2020.
3. The Indian e-commerce segment is US$ 22
billion in size and is growing at a high rate and
thereby offering another attractive avenue for IT
companies to develop products and services to
cater to the high growth consumer segment.
References
Economy Watch – India IT Industry, NASSCOM – Growth of
Indian IT Industry, IBEF – IT Industry, TCS Annual Report

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OMEGA
BRAND ANALYSIS

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OMEGA is one of the brands of the Swatch Group
which is a well-known manufacturer in the watch
market. There are 19 watch brands in the group, and
each brand has different price categories in order to
fit with different segments of customers. In each year,
the group produces thousands of watches and these
watches are sent to the group's worldwide network of
distribution organization which makes their products
well organized and allocated to the market.
OMEGA has a more than 160 year history in watch
market. The brand was originally founded by Louis
Brandt in 1848 in Switzerland. After Louis Brandt
passed away, his business then passed to his sons,
Louis-PaulandCesar,whoshiftedtheproductionfrom
a traditional workshop to mechanized production. In
1892, the Brandt brothers manufactured the first watch
(Minute-repeater) which can display hours, quarter
hours and minutes. And in the year 1894, the 19-line
caliber watch was presented, and used the symbol Ω
as the brand to introduce to the public. Since then, the
brand has taken an important role in watchmaking
evolution, technology innovations and development
making OMEGA a premier brand in the watch market
industry. In addition, excellent marketing strategies
have also made it a long lasting brand.
STP
Segmentation
STP strategy denotes of Market Segmentation,
Market Targeting and Product Positioning strategies.
"Marketing segmentation refers to the division of a
market into distinct groups of buyers with different
needs, characteristics or behavior, who might require
separate products or marketing mixes". Sarabia (1996)
also states "Market segmentation consists of detecting,
evaluating and selecting homogeneous groups of
individuals, whether they are consumers or not, with
the purpose of designing and directing competitive
strategies towards them." Different age, income and
social class may affect customers' preferences or their
decision to purchase. OMEGA segmented the brand
itself into sporting and pioneering spirit, in the luxury
and prestige range. And for the customer, the brand
focuses firstly on demographic segmentation. The
product is not only for both genders but also for those
who are in highly successful business level such as
managers or enterprise owners. Since OMEGA set up
the brand image as a sporting and pioneering spirit,
customers who are interested in sports and care about
the technology and qualities of a watch will fall into
their customer market.
Targeting
Upon identifying segmentation, targeting is the
next step to measure the attractiveness of a potential
segment. Marketers will take action to invest
resources in a group, and with the aim of turning the
group into customers. OMEGA used a differentiated
targeting strategy which means that they divided their
collections into five series which include Constellation,
Seamaster, Speedmaster, De Ville and Specialities
series. The different series are for customers with
different demands. For example, in the Constellation
series, hours are decorated with diamonds instead of
numbers which is suitable for customers who pursue
status and style. Seamaster and Speedmaster series
are targeted to customers who like outdoor activities.
Customers who prefer understated luxury may prefer
De Ville series. And for those who like to collect special
design and limited quantity watches, the Specialities
series must be the first choice.
Positioning
With perfect segmentation and targeting, the position
stage will be the key point to launch into the market.
"Positioning is the act of designing the company's
offering and image to occupy a distinctive place in the
mind of the target market." Apart from celebrities or
rich people who wish to wear a specific watch to reveal
their status, the functions of a watch are almost the
same and there is no big difference between the watch
itself. So it is important to display the brand image or
unique features which makes the brand into a special
item. OMEGA creates the image that when customers
weartheirwatch,theymayfeeltheyareinabettersocial
class, with fashionable and on-trend taste. Also the
unique feature such as Seamaster series of OMEGA is
made as a professional diving watch, which is suitable
for customers who love diving activities. Moreover,
co-axial chronograph is an exclusive technology that
OMEGA owns which makes the product unique and
special. Because positioning is connected mainly with
the element of marketing mix, it is important to make
sure that the marketing mix is well set in place. And
this will be explained further in the next section.

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Product Mix
Product
There are numerous tools available to gain a
competitive edge in the target market, but the most
popular in marketing studies are the marketing mix,
the 4Ps, namely product, place, price and promotion.
Product is a tangible or intangible item that a company
offers to their customers and is also an important
element when starting a marketing action. It is not
good enough to have an excellent marketing strategy;
the product itself also needs to be desirable and
attractive. In addition, the brand needs to have its own
features or speciality to allure customers' motivation
to purchase. OMEGA is one of the brands which
specialized in design and is known for the quality of
manufacturing. Its orientation as the technological
innovator, outstanding quality, and the involvement
in sports and design also makes OMEGA a clearly
recognizable brand in the watch market. The sense of
fashion and trend can also be attributed to OMEGA
which is one of the most familiar watch brands at
the luxury and high-end range of market. Moreover,
consideration to customers is also of great importance
to the brand. The global guarantee of watches makes
OMEGA's service unrestricted by region.
Price
Price is the products' value which sellers would like to
earn from the customers in exchange for the product.
Most of the time, price is a major and essential element
when a customer is selecting a product. But it doesn't
meanthatmarketersarealwaysusinglowpricestrategy
to encourage customers to purchase. Sometimes, they
will offer a higher price to emphasize the qualities and
design of the products or even demarcate the status of
the customers. For the brand OMEGA, it is allocated
in the prestige and luxury range in the Swatch Group;
however, only a few specific models are as expensive as
Breguet, Blancpain, Glashutte Original, Jaquet Droz,
Leon Hatot, Tiffany & Co in the same range of the
group (Swatch Group 2010). For others, the price is
set as a higher price but not the highest which makes
customers feel they are having the highest quality
products but with more value for money.
Promotion
Promotion is an action to inform customers or buyers
about goods, services, or ideas, in order to persuade
them to purchase the products. To promote a product
or brand, the company has to utilize different channels
to contact with customers. As many watch companies
did, OMEGA advertised its watch in different
categories of magazines but focusing mostly on
famous, high-reputation and executive level readers'
ones. In addition, holding seminars to introduce
new products or giving public releases are the most
common methods when promoting products. And
the most valuable is that OMEGA sometimes shows
up their brand names in international sports games,
such as the Olympic Games, as an official timekeeper
to promote and state the quality of their brands.
They also invite celebrities as their ambassadors to
establish their brand image. For example, male actors
and athletes-George Clooney and Sergio Garcia, etc
are the representatives of OMEGA Seamaster series.
And for the Constellation series, they invite actresses
and female athletes, Nicole Kidman, Cindy Crawford
and Michelle Wei, etc as ambassadors of the products.
Furthermore, the Speedmaster series is represented
by astronauts due to the fact that this watch was the
first worn on the moon. Last but not least, product
placement in movies such as 007 or media is also
a promotion method which the brand often used
(OMEGA, 2010).

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Place
Place is identified as "The availability of the product
to the customer at the desired time and location."
The parents company of OMEGA, the Swatch Group,
has a global supply chain management system which
makes OMEGA capable of sales to the various
international subsidiaries, which are over 200 agents,
providing them with up to date information on sales
and inventories and open orders. And there are over
10,000 retailers across the globe located in department
stores, airports, some selected boutiques and thriving
cities giving customers easy access to their products.
Competitor Analysis
In the watch market World, the major competitors
of the Swatch Group include the Rolex Group, the
Richemont Group, the LVMH Group, the Citizen
Group, the Seiko Group, and the Desco Group.
Rolex Group
Now, the nearly 100-year-old Rolex Group is the
Switzerland's second-largest watch companies, with
annual sales of more than 2.0 billion Swiss francs,
and an amount of 3700 employees inside. The group
only produces the Rolex watches and its brother brand
Tudor table which always win the first sales year after
year. Nearly 50% of the national annual production of
gold has been used for the Rolex watches production.
Vendome Group
Vendome Luxury Group is a subsidiary of Richemont
whichistheof9thlargestbusinessgroupinSwitzerland.
It has a lot of luxury brands such as Cartier, Alfred
Dunhill, Montblanc, the Portland game, and so on.
Since 1988, Vendome Group has acquired three
Swiss luxury brand table- Famous, Count, Vacheron
Constantin. Then it expanded the business of Cartier
from the jewelry field to luxury watches. Thereby, it
ranks among the world's largest three producers of
clocks and watches, with an annual sale of 1.5 billion
Swiss francs.
Louis Vuitton Moët Hennessy Group
The group LVMH in France is the world's number
one luxury group. After bought the three Swiss
watch brands -Yubao, luxury, and Ci Nite last year,
LVMH Group leapt to the world's fourth largest
watch manufacturer immediately. From then on,
together with the Switzerland's three Groups - Swatch,
Rolex and Vendome, the France located enterprises
controlled the world’s luxurious watches a share of
80%.
Fossil Incorporation
Fossil based in the United States is at the same rank
as GUESS and DKNY which mainly operate watches.
Watch maker Fossil and the Swatch Company, a
subsidiary of Swatch Group, brought the watch
industry the fashion element together in the 1980s.
Then, the two companies competed intensely both in
the European and the United States market.
Basically there are four separatists in luxury watch
market. They are the Rolex Group, the Swatch Group,
the Vendome Group, and the LVMH Group. Among
them, the three Swiss watch exports accounted for
four-fifths of the total exports of luxury watches.
Marketing Campaigns By Omega
Only Watch Worn On The Moon
The image and words of John F. Kennedy, the 35th
president of the United States, were used in a 2009
advertising campaign to sell Omega Speedmaster
watches. JFK’s image is there, big as life, as seen in the
samplemagazineadcopyatrightthatranintheAugust
and September 2009 editions ofWired magazine,
among others. JFK is also shown in a TV version of
the ad that used historical film footage from a 1962
speech he gave (clip below). The magazine and TV
spots were created around the 40th anniversary of the
American landing on the Moon and the Apollo space
program that Kennedy initiated.
Omega Speedmaster watches have history with
the U.S. space program; the Omega Speedmaster
Professional was the official watch tested and approved
by the National Aeronautics and Space Administration
(NASA) for use by U.S. astronauts in the 1960s. In
fact, a few of the watches eventually made their way
to the moon with astronauts wearing them — a claim
made in the upper portion of the ad in the small print

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beneath the Omega logo: “The first and only watch
worn on the moon. 20 July 1969.”
View From Up Here
Omega’s latest multichannel push seems to be a brand
awareness campaign since most of its mechanical
watches are equipped with the Co-Axial chronometer
movement, per the brand.
The YouTube ad placement likely garnered awareness
beyond the brand-operated digital channels where
Omega first introduced the campaign.
Consumers who visited YouTube’s homepage April 5
saw the large banner ad which took up approximately
one-third of the above-the-fold space on the site.
The ad showed a solar system that was seemingly
being powered by the Co-Axial system. In addition
to the brand logo and “Co-Axial Chronometer,” the
ad stated, “Click to follow the astronaut and watch the
full video.”
References
Omega Watches, Luxury Daily – Omega Watches

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MTV
BRAND ANALYSIS
ZARA
CASE STUDY ANALYSIS

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At Zara, speed and responsiveness are more important
than cost. Other brands churn out fast fashion;
Zara, which is based in Spain and is owned by the
distribution group Inditex, attempts the mind-
spinningly supersonic.
The founder, Amancio Ortega, founded Zara in
1975 in order to better understand world markets
for his fashion merchandise. A decade later, he
formed Inditex as a parent company for Zara, as well
as several other retail concepts and suppliers that he
had built.
While Zara originated in Spain, it has stores in 86
countries today - in Europe, the Americas, the Middle
East, and Asia. In 2012, Inditex reported total sales of
US$20.7 billion, with Zara representing 66 percent of
total sales (US$13.6 billion).
The brand is renowned for it’s ability to deliver new
clothes to stores quickly and in small batches. Twice
a week, at precise times, store managers order clothes,
and twice a week, on schedule, new garments arrive.
The company produces about 450 million items a year
for its 1,770 stores in 86 countries.
Toachievethis,Zaracontrolsmoreofitsmanufacturing
and supply chain than do most retailers. For Zara, its
supply chain is its competitive advantage.
Synergy Between Business And Operations
Strategy
Zara’s overarching strategy is achieving growth
through diversification with and vertical integrations.
It adapts couture designs, manufactures, distributes,
and retails clothes within 2 weeks of the original design
first appearing on catwalks.
The company owns its supply chain and competes on
its speed to market, literally embodying the idea of
“fast fashion”.
Just In Time Production
The retail giant delivers fashionable and trendy
numbers catered for different tastes through a
controlled and integrated process – just in time.
Zara keeps a significant amount of its production in-
house and makes sure that its own factories reserve
85 percent of their capacity for in-season adjustments.
In-house production allows the organization to be
flexible in the amount, frequency, and variety of new
products to be launched.
The company often relies heavily on sophisticated
fabric sourcing, cutting, and sewing facilities nearer to
its design headquarters in Spain.
The wages of these European workers are higher than
those of their developing-world counterparts, but the
turnaround time is miraculous.
Zara also commits six months in advance to only 15 to
25 percent of a season’s line. And it only locks in 50 to
60 percent of its line by the start of the season, meaning
that up to 50 percent of its clothes are designed and
manufactured smack in the middle of the season.
If a certain style or design suddenly become the rage,
Zara reacts quickly, designs new styles, and gets them
into stores while the trend is still peaking.
Store managers communicate customer feedback on
what shoppers like, what they dislike, and what they’re
looking for. That data is instantly funneled back to
Zara’s designers who begin sketching on the spot.
Zara also has extra capacity on hand to respond to
demand as it develops and changes. For example, it
operates typically 4.5 days per week around the clock
on full capacity, leaving some flexibility for extra shifts
and temporary labor to be added when needed.
This then translates to frequent shipments and higher
numbers of customer visits to the stores, creating an
environment of shortage and opportunity.
This strategy allows Zara to sell more items at full
price because of the sense of scarcity and exclusiveness
the company exudes. Zara’s total cost is minimized
because merchandise that is marked down is reduced
dramatically as compared to competitors.
Zara gets 85 percent of the full price on its clothes,
while the industry average is 60 to70 percent. Unsold
items account for less than 10 percent of its stock,
compared with an industry average of 17 to 20 percent.
“Most companies are riddled with penny-wise, pound-
foolish decisions to reduce cost,” says Kasra Ferdows,

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a professor at Georgetown University’s McDonough
School of Business. “Zara understands that if they don’t
have to discount as much, they can spend money on
other things. They can see the benefit of this certainty
and rhythm in the supply chain.”
This is also the reason why Zara can afford the extra
labor and shipping costs needed to accommodate and
satisfy changes in seasonality and customer demand.
Inventory Management
Zara is fully aware of the saying, “inventory = death”.
It avoids piling up inventory in any part of its supply
chain from raw materials to finished products.
Inventory optimization models are put in place to help
the company to determine the quantity that should
be delivered to every single one of its retail stores via
shipments that go out twice every week. The stock
delivered is strictly limited, ensuring that each store
only receives just want they need. This goes towards
the brand image of being exclusive while avoiding the
build up of unpopular stock.
This quick in-season turnaround, from production
facilities located close to Zara’s distribution
headquarters in Spain, allows Zara to ship more often
and in smaller batches. If the design Zara hastily
creates in an attempt to chase the latest trend does not
in fact sell well, little harm is done.
The batch is small, so there’s not a ton of unsold
inventory to get rid of. And because the failed
experiment is over in a jiffy, there’s still time to try a
different style, and then a different one after that.
Centralized Logistics
“The secret to their success has been centralization,”
says Felipe Caro, an associate professor at the
University of California at Los Angeles’s Anderson
School of Management and a business adviser to
the company. “They can make decisions in a very
coordinated manner.”
Zara sticks to a deep, predictable and fast rhythm,
based around order fulfillment to stores.
Each Zara outlet sends in two orders per week on
specific days and timing. Trucks leave at specific
times and shipments arrive in stores at specific
times. Garments are already labeled and priced upon
destination.
As a result of this clearly defined rhythm, every staff
involved (from design to procurement, production,
distribution, and retail) knows the timeline and how
their activities pan out with respect to other functions.
That certainly also extends to Zara customers, who
know when to visit stores for fresh new garments.
Solid Distribution Network
Zara’s strong distribution network enables the
company to deliver goods to its European stores within
24 hours, and to its American and Asian outlets in less
than 40 hours.
According to Nelson Fraiman, a Columbia Business
School professor who wrote a 2010 case study about
Zara, the retail giant can get a product out from
concept to store in just 15 days, while the industry
standard is 6 months.
At Zara, change doesn’t disrupt the system; it’s part of
the system.
This brand’s success story shows the strength of its
operations. Its cross-functional operations strategy,
coupled with its vertically integrated supply chain,
enables mass production under push control, leading
to well-managedinventories,lowermarkdowns,higher
profitability, and value creation for shareholders in the
short and long term.
References
Telegraph – How Inditex Became World’s Biggest Fashion
Retailer, Business Insider, Business Of Fashion – Zara, Zara -
India

18. VOLUME 04BEACON
August 2016
16
ISSUE 08
PRODUCT PORTFOLIO
CONCEPT OF THE MONTH

19. VOLUME 04BEACON
August 2016
17
ISSUE 08
A company should have a portfolio of products with
different growth rates and different market shares to be
successful. The portfolio composition is a function of
the balance between cash flows. High growth products
require cash inputs to grow. Low growth products
should generate excess cash. Both types are needed
simultaneously.
Four rules that determine the cash flow of a product
are
1. Margins and cash generated are a function of
market share. High margins and high market
share go together. This is a matter of common
observation, explained by the experience curve
effect.
2. Growth requires cash input to finance added
assets. The added cash required to hold share is a
function of growth rates.
3. High market share must be earned or bought.
Buying market share requires an additional
increment of investment.
4. No product market can grow indefinitely. The
payoff from growth must come when the growth
slows, or it never will. The payoff is cash that
cannot be reinvested in that product.
“Cash Cows” are products with high market share and
slow growth. They generate large amounts of cash,
in excess of the reinvestment required to maintain
market share. This excess need not, and should not,
be reinvested in those products. In fact, if the rate of
return exceeds the growth rate, the cash cannot be
reinvested indefinitely, except by depressing returns.
“Pets” products with low market share and slow
growth. They may show an accounting profit, but the
profit must be reinvested to maintain share, leaving
no excess cash. The product is essentially worthless,
except in liquidation.
All products eventually become either cash cows or
pets. The value of a product is completely dependent
upon obtaining a leading share of its market before the
growth slows.
“Question marks” are low market share, high growth
products. They almost always require far more cash
than they can generate. If cash is not supplied, they
fall behind and die. Even when the cash is supplied, if
they only hold their share, they are still pets when the
growthstops.The“questionmarks”requirelargeadded
cash investment for market share to be purchased. The
low market share, high growth product is a liability
unless it becomes a leader. It requires very large cash
inputs that it cannot generate itself.
“Star” is the high share, high growth product. It nearly
always shows reported profits, but it may or may not
generate all of its own cash. If it stays a leader, however,
it will become a large cash generator when growth
slows and its reinvestment requirements diminish.
The star eventually becomes the cash cow, providing
high volume, high margin, high stability, security, and
excess cash for reinvestment elsewhere.
The payoff for leadership is very high indeed, if it is
achieved early and maintained until growth slows.
Investment in market share during the growth phase
can be very attractive, if you have the cash. Growth in
market is compounded by growth in share. Increases
in share increase the margin. High margin permits
higher leverage with equal safety. The resulting
profitability permits higher payment of earnings after
financing normal growth. The return on investment is
enormous.
The need for a portfolio of businesses becomes
obvious. Every company needs products in which
to invest cash. Every company needs products that
generate cash. And every product should eventually
be a cash generator; otherwise it is worthless.
Only a diversified company with a balanced portfolio
can use its strengths to truly capitalize on its growth
opportunities. The balanced portfolio has
• stars whose high share and high growth assure the
future;
• cash cows that supply funds for that future growth;
and
• question marks to be converted into stars with the
added funds.
• Pets are not needed. They are the proof of failure in
obtaining a leadership position during the growth
phase, or of getting out and cutting the losses.

20. VOLUME 04BEACON
August 2016
18
ISSUE 08
References
BCG Perspectives – The Product Portfolio