# Class 7: Zara Continued - Risk Pooling (👗) *July 31, 2025 | [Transcript](./🦦/7🟧👗15778_intro_ops_otter_ai.md)* ## 🎯 Teaching Arc **Hook**: "Not losing customer to item, but moving to next item" **Puzzle**: Underage cost isn't just $60 - depends on assortment **Resolution**: Compelling assortment creates virtuous cycle **Model**: Risk pooling + rapid rotation strategy ## 🗣️ Quality Participation **Key Insight**: Customer behavior in fashion - "If you don't see compelling item, won't buy anything" - Impact: Redefined underage cost calculation **Discussion**: ⭐️"Formula modularizes thoughts" - Portfolio exists at particular point in time - Rapid rotation creates scarcity value ## 📊 Quick Scores Track students who: - Challenge standard cost assumptions - Connect customer psychology to inventory - See systemic effects (virtuous cycles) ## 🔗 421 Diagram ### Zara's Virtuous Cycle ``` 🟢 Fast design/prod 🟣 Fashion seekers Limited quantities Repeat visitors \ / Coordinate ←→ Compel / \ 🟠 Rapid rotation 🔴 Fresh assortment Minimize markdowns Scarcity appeal ``` ## 📚 Exam Essentials **Concepts**: - Underage cost = $60 × P(customer buys nothing) - ⭐️Formula modularizes thoughts - Portfolio optimization over time **Key Innovation**: Assortment as retention tool **Strategy**: Small batches → Test market → Scale winners **Traps**: ❌"Standard newsvendor costs" ✅"Consider customer journey" ## 🎓 Recitation Points - "Compelling assortment → repeat visits" - "Virtuous cycle: rotation → urgency → sales" - ⭐️"Eyeballs effect" - visibility drives demand --- *Previous: [Zara Introduction](./6👗_Zara_FastFashion.md) | Next: [Yedioth](./8📰_Yedioth_Newsvendor.md)*