Zara Online Business Analytics Case Study

January 29, 2012

Zara has long used promotional website to draw attention to its product lineup. Zara’s main company website, Zara.com, attracted over 33 million visitors in eight months of 2010, before the launch of the online sales on September 2nd, according the INDITEX 2010 Annual Report.


Though there is no more recent information on web traffic available, it is safe to extrapolate those data and estimate that annual traffic was in access of 50 million visitors. The launch of online sales in selected markets most likely brought even more traffic from the customers who long anticipated the opening of the online stores.

Zara’s Facebook page has over 10 million fans, there are over 10 thousand followers of the company on Twitter, and its IPhone app was downloaded on thousands of mobile devices.

In fall 2010 Zara opened its first online stores in 6 European markets, and increased the number of countries to 16 over the course of the year. In September 2011 Zara entered the US market with online sales, and Japan online store will be open by the end of October 2011.

Zara’s entry to the online retail has opened access to an enormous source of data that can be collected and analyzed to further promote the company’s business strategy and goals. As far as we are concerned, we believe that data gathered from online transactions should not be closely contained for the narrow, however important, purpose of increasing online sales through the web site optimization and other tweaks to the website alone.  We are confident that the collected data in combination with other sources of data generated throughout the company and, more importantly, other retail brands under INDITEX group, can open incredible opportunities for the company’s growth.

Therefore there are three major areas of data analysis application from the data collected through the online sources:

  • Increasing online sales. This goal will be achieved through the following means:
    • Website optimization, including Search Engine Optimization; improving usability and functionality; multivariate testing.
    • Online promotional events.
    • Maintaining and increasing the customers interaction and feedback  through the main company website and social networks outlets, such as Facebook and Twitter.
  • Overall company-wide marketing optimization:
    • Identifying the optimal marketing message and delivery through online testing and transferring it to the offline campaigns.
    • Segmentation and targeting of various customer groups, based on the identified group characteristics.
  • Strategic business optimization:
    • Identifying the products and fashion trends which have the biggest appeal to the online customers and correlating it with the traditional stores data to better optimize the design of new fashion items.
    • Integration of transactional and behavioral data from the online store and traditional stores.
    • Integration of online sales data with data collected through other company’s functional departments, such as Customer Service, Call Center, Financial, Marketing, Design Team, Production, Supply Chain, etc.
    • Integration of data collected from Zara’s online and offline sales with the data collected by other retail brands of INDITEX group.
    • Construction and evaluation of company’s integrated Key Performance Indicators (KPI).

Construction and evaluation of Key Performance Indicators is one of the most important outcomes of the data analysis efforts, regardless whether the data are collected online or offline.

The KPIs can be developed separately for each of the areas listed above, such as website KPIs, marketing KPIs, and integrated strategic KPIs. Each of these groups has specific metrics that are unique to their goals and objectives. However, it seems only natural to assume that integrated strategic KPIs may have the greatest value for the company both for short term objectives and strategic planning.

Through integrative approach to these key performance metrics the company will be able to effectively steer its business course in the ever-changing environment, which includes macro- and microeconomical shifts, business situation, fashion trends, localized changes, consumer preferences, consumer attitudes towards the company, etc.

 Online Retail Websites KPIs

The most commonly used metrics for e-commerce sites that we suggest to implement on Zara’s retail sites are:

  • Purchase conversion – the number of purchases over the total number of visits. This metric is specifically helpful if it is tied-in with the changes made to the site itself and the changes to the product inventory.

However, it is important to separate these two kinds of changes on the timeline, so we could get a more accurate picture of what particular change caused fluctuations in purchases conversion.

Therefore it is advisable to implement and optimize the online retail site through multivariate testing first with the limited and constant inventory. Given the large amount of traffic on Zara’s website, this testing should not take long before credible data could be collected and analyzed.

Once the website is optimized, we will be able to have a better insight on customer purchasing trends based on the analysis of sales of particular product inventory.

  • Average Order Size – the dollar/euro/other currency amount spent on each order. For most retailers, including Zara, it is an important metric, given that the profit margins are often related to the dollar value of the purchase. Therefore the bigger monetary value of the order, the lower is the overhead.
  • Items per Order – shows the effectiveness of cross-selling on the site. It can also be connected to the effectiveness of specific promotional campaign. This helps to optimize recommendations to various groups of customers and fine tune the marketing message.
  • Purchase dropouts rate – the number of customers who abandoned the purchase to the total number of customers who started the purchasing process. This metric is extremely helpful in identifying what steps in the sales process deter the customers from completing the transactions. The cause of this dropout could be in the website design or in disclosing additional information to the customer. For example, customers may abandon the purchase once the shipping cost is added to the total cost. This information may give further insights on customers’ price sensitivity or timeliness of the order, and prompt Zara to optimize its shipping and handling operations.
  • Effect on offline sales – this metric is usually difficult to measure, but is extremely important to capture. Not all online visits may end up with purchase, but some of those visitors could be gathering additional information before visiting the store to make a purchase. This metric could be partially measured by offering some additional service or gift at the store with the code provided online.
  • Returned items rate – the percentage of returned items purchased online. It is critical to receive and analyze customer’s feedback on the reasons of the return. For example this metric may indicate deficiencies in product presentation online, whether it is the picture of the item or its verbal description. Could be helpful in improving the copy quality and clarity.

These are the most commonly used KPIs for measuring online retail site effectiveness, but there could be others. That is why it is important to continuously monitor the website performance and identify additional metrics specific to Zara’s situation.

Company Marketing KPIs

Zara’s approach to marketing has a unique trait – shunning the advertising. The company has been following on its conviction for a long time. The company has been funneling the available funds in aggressively expending its distribution channels by opening new stores. However advertising is only one of the tools in the marketer’s toolbox.

The information gathered from online and in-store sales can be used for designing and executing Zara’s own marketing initiatives, such as direct mailing. Therefore these could be some of the KPIs to measure marketing effectiveness of the company:

  • Response rate by segment – after the customers segmentation is done, Zara can measure which segment responses better to particular marketing campaign. Segmentation can be done by demographic, behavioral, attitudinal, geographic and other criteria.
  • Response rate by the marketing media – will measure if customers respond better to regular mail, email, website promotion or in-store promotional offers.
  • Response rate by marketing message – this can be done in any of the marketing channels: online, in-store, mailing campaign. However online testing is offering the most efficient way of testing the marketing message due to its near real time availability of the analysis of the data. After the message is tested online, it can be transferred to other marketing channels with greater level of assurance about its effectiveness.
  • Cost per marketing campaign/cost per sale – measures effectiveness of a particular campaign in monetary terms.
  • Revenue per marketing campaign/revenue per sale – measures the overall revenue generated by a particular campaign or by an average sale in the campaign.

The last two KPIs need to be evaluated together in order to evaluate the overall marketing campaign effectiveness. Additional KPIs could be developed to measure overall marketing strategy of the company. Some of the KPIs identified for online retail website could also be applicable to the marketing area, only on a broader scale.

Company Strategic KPIs

These KPIs are more difficult to identify and measure, however some suggestions could be made to initiate the process for further development of strategic KPIs.

  • Ratio of winning designs – given the amount of new designs churned out by the company annually – 11 thousand vs. two – four thousand by other major fashion brands, it is very important to cull out the losers and focus on the winning designs. This also can be helpful in identifying the broader fashion trends in order to align the design team’s efforts with the customers’ demands.
  • Ratio of cross-brand conversions – Zara is a leading brand in the INDITEX retail group. By analyzing customers’ purchases, behavior and attitudes collected through multiple channels it is extremely important to be able to monetize the existing customers to the fullest extent possible. For example, referral of Zara Home customers to Zara and vice versa  could prove to be an efficient and effective way of monetizing existing customers due to the brands recognition.
Zara Store at a Shopping Mall

Zara Store at a Shopping Mall

Overall we can conclude that existing analytical culture in Zara and introduction of new data sources through online retail stores have a great potential for further expansion of the company’s analytical competencies. Integration of online and offline collected data is the key to improving the accuracy of company’s analytical output and the quality of decision making based on that output. By consistently analyzing the data the company will be able to identify the positive and the negative aspects of its overall business model and strategy. This may allow the company not only to maintain its leading market position in the fashion industry, but also to increase its market share and drive the revenues and profits based on the timely and relevant decision making backed up by the sound business intelligence.

References:

Actionable Web Analytics: Using Data to Make Smart Business Decisions, Jason Burby & Shane Atchison, Sybex 2007

Group INDITEX Annual Report 2010