Economic Concepts in ZARA

So how many of you like to shop in ZARA? I personally love their apparel. Yes they are pricey, but they are indeed a class apart. Ever wondered, what are the economic concepts that might be going inside the company, fetching them unmatched success even in Indian market.

Source: India TV

Following are 5 such concepts:

1. People respond to incentives - ZARA puts on several discounts and sales on its apparels to induce more and more customers to buy their products. This has in fact helped ZARA acquire a good customer base in India.

2. Law of Diminishing Marginal Utility - The law states that the marginal utility of a product declines as a consumer keeps obtaining more and more of the product. ZARA understands this aptly and comes up with new clothing trends almost every season!

3. Law of Marginal Rate of Substitution - The marginal rate of substitution is the rate at which a consumer is willing to give up some amount of one good in exchange for another good while achieving the same level of utility. Keeping different assortment of designs at different prices actually allows consumers to switch between similar price range products yet enjoy elegant designs.

4. Price Elasticity of Demand - ZARA products can be considered as Veblen goods (premium product), as the demand of the apparel stays high even when the price increases. 

5. Price Discrimination - Although ZARA puts high price tags on its apparels, people still buys them. First degree discrimination is applied where company charges maximum possible price for each unit consumed.