Disruptive Business Models Revised

Disruptive Business Model
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1.
To understand what disruptive business models are, it would be important first to understand what disruption is. This is normally where a company with fewer resources and often small displaces existing companies with more resources from their market leadership positions or offer a significant threat to these positions. Existing companies usually focus on more profits through improvement of products that bring more revenues and therefore end up ignoring the needs of some product segments. Disruptive entrants often focus on the ignored segments by giving them value at lower prices. The existing companies often tend to ignore such companies by focusing on profitability and believing that these companies are just wasting their time and resources. The new businesses then start expanding while providing the services and goods that customers require which no one was supplying before. Customers with time adopt the new products leading to a new disruption.
Disruptive models are therefore those that focus on redefining and creating products or services to create new value networks and markets and therefore displace market leaders and existing firms as well as products. The large firms often ignore the markets established by disruptive firms as they are usually too small to offer the hope of growth and have low-profit margins. Christensen (2003) argues that there are two types of disruption; the new market disruption and low-end disruption.

Newmarket disruption usually happens when a new product that was not being provided by the existing firms is provided by new entrants. Low-end disruption on the other hand results when the rate of products improvement is more than can be adopted by the existing customers. New organizations in this situation seek to offer products that have lower performance than the existing ones (Christensen, 2003).
Netflix is one of the companies that have employed disruptive business models to reach their current positions. When the company was initially launched, movie enthusiasts used to rent new blockbusters that they would return to get other new movies. The company introduced an online system where customers could order and receive the blockbusters through the mail. This reduced the need for traveling to rent the movies. The movies, however, took long to arrive, and the company did not, therefore, appeal to customers who only watched new releases. The company adopted a more disruptive model where customers could stream their favorite and new movies over the internet. This method was highly convenient and less costly compared to conventional methods.
Apple also employed a successful disruptive business model when it launched the iPhone in 2007. The product, which targeted existing phone and laptop users, seeking to displace the laptop as the major tool to access the internet with. The company did this mainly through connecting the app developers with its customers through its iOS platform. The company had effectively created a new market where the phone would be the major internet access point.
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Gap and the industry, in general, had a different approach to that of Zara. The process of new product development and launches was for example very rigid and therefore unresponsive to customers; needs. An introduction of new clothing would require up to nine months of production, planning, and marketing to ensure that it was successful (Doiron, 2015). The new items would normally be introduced to the general public on runways where it would be scrutinized by corporate executives and fashion designers before releasing to the market. The products would not yet be ready for introduction in the major fashion markets as they had to be tested in third-world markets, undergo further scrutiny and changes before the final release. The products would then be transported to various warehouses near the retail outlets. Strategies for each store would then be determined.
The company’s growth perspective was hinged on brand expansion and geographic expansion. The company therefore increased its stores significantly over the years. The company also expanded into various brands (Doiron, 2015). The company also has to engage in extensive marketing activities and campaigns to drive sales and profits. The company’s strategy is usually based on the assumption that shoppers will be pushed to buy the product once they view or see the ad. This is usually the case in many companies not just in the apparel industry. The conventional advertising channels include emails, print advertising, in-store promotions, TV commercials and social media. The advertising is at times quite costly to the business. The company’s advertising expenses for the year were for example on the increase from the year 2010 to 2012 moving from $516 to $548 to $653 (Gap, 2012). This was assumed to be accompanied by an increase in profits.
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Zara’s business approach is hinged on the belief that to survive in the fashion industry the business is to allow quick responses to the changing customers’ needs. To this regard, the company believes that a bureaucratic/hierarchical structure of governance and decision making would not work. Employees, therefore, have to be involved largely in the organization’s decision making and processes if the ever-changing need of the customers has to be met. Distribution decisions, manufacturing, and product development decision often fall on the employees. This is achieved mainly through employee groups that are commonly referred to as commercials and which are grouped according to activity (Doiron, 2015). The design team commercial is for example responsible for various cloth designs in different categories such as men, children, and women. Each is made up of two designers and two product managers. These groups have been given the authority to set prices, order fabric and design the clothing in their category. The regional commercials on the other hand act as the uniting force between customers and store managers though consulting both parties on various issues about their geographical region. They advised on possible clothes to add to the market after observing what was being worn by their potential customers. Store managers belong in the upper category of the commercials and are mainly responsible for inventory selection after interaction with customers. The company did not also have a store inventory management for some time to ensure that the store managers interacted more with the customers to identify their changing needs.
The company does not also believe in time wastage as it has to respond to the various changes in the market and in consumer needs on time. Zara’s process of product development and launch takes a maximum of two weeks. Any new fashion is therefore captured in the shortest time possible to give customers to enjoy the experience they need.
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There are a number of differences between Zara’s and Gap’s approach. To start with, Gap engages in extensive advertising activities and campaigns to drive sales and profits. The company’s strategy is usually based on the assumption that shoppers will be pushed to buy the product once they view or see the ad. The various advertising channels used by the company include emails, print advertising, in-store promotions, TV commercials and social media. Zara, on the other hand, spent close to nothing on advertisements with a bulk of the few advertisements being on new store openings. Compared to the industry’s 3 percent of advertising expense to revenue, the company can only be put in a class of its own with its 0.3 percent. (Doiron, 2015). The company aims at improving customer experience in the various stores for repeated sales rather than increasing sales through adverts. With the people-oriented work structure in Zara, the company is in a better position to mitigate the risks associated with unpredictable customers and their ever-changing needs. Through the various groups/”commercials”, customers’ data is collected effectively and used to ensure that they are comfortable with what the company provides.
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Zara’s approach is disruptive in some ways. To start with, the company instead of relying on advertisements and marketing in general to drive sales and revenue, it spends its resources in stores positioning where a number of its stores are located in strategic regions in Europe. The stores are well furnished and designed to give the perfect shopping experience and make customers to always come back for more. The company also takes little time to test and plan on the best products to launch in the market. For other companies, planning and testing are a crucial part of business as it prevents the launch of unwanted products that would negatively affect the company’s profits due to their failure to move. Zara, however, believes that the best way to respond to the ever-changing consumer needs is by speeding up the production process. One of the disadvantages of the model is that the company produces in high-cost regions which are not preferable in business. The model is however quite beneficial in that it helps the company mitigate demand uncertainties and remain the go-to store for many customers. Zara also started producing in the high-cost Spain labor market instead of going to a low-cost region like Asia as many other companies do. Its products are also not of very high quality, rather it believes in making the customer to always come for more despite how poor it is.
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Zara is a fashion retailer. It sells women, children, and men’s fashion products.
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References
Christensen, C., & Raynor, M. (2003). The Innovator’s Solution: Creating and Sustaining Successful Growth (1st ed.). Brighton: Harvard Business Press.
Doiron, D. (2015). What Business is Zara in? London, Canada: Ivey Publishing.
Gap. (2012). Gap Inc. – Investors – Annual Reports and Proxy. Investors.gapinc.com. Retrieved 10 February 2018, from http://investors.gapinc.com/phoenix.zhtml?c=111302&p=irol-reportsAnnual