IKEA Strategic Marketing Management Essay Sample
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- Category: ikea
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IKEA Strategic Marketing Management Essay Sample
In 1943, IKEA was founded by Ingvar Kamprad. It is a World’s leading home furnishings and largest furniture retailer based in Sweden. IKEA numbers 1,04,000 employees in 267 stores in 45 countries.
Ingvar Kamprad, believes that: “Most things still remain to be done. Time is your most important asset. Split your life into10-minute units and sacrifice as few as possible to futurities” (Mclvor, Laurance,1994: 38).
The corporate culture of IKEA is built upon this philosophy all the way from design teams to suppliers and to the customer. A continuous strife for improvement in all areas of the value chain is an effective way to shape the industry to better fit IKEA’s future strategies. Due to the uniqueness of IKEA’s strategic positioning, being the largest competitor in its field, the firm has the advantage of setting the phase of the industry.
Bureaucracy is fought at all levels in the organization. Kamprad believes that “simplicity and common sense should characterize planning and strategic direction” (Bartlett et Al, 1993: 78).In addition, the culture emphasizes efficiency and low cost which is not to be achieved on the expense of quality or service. Symbolic policies such as only flying economy class and stay at economical hotels, employing young executives and sponsoring university programs have made cost part of corporate culture and has further inspired the influx of entrepreneurship into the organization.
Where are they now?
5 C ANALYSIS
* Kitchen ware
* Living room
* Bathroom & Laundry
* Small storage
Awards won by the company
* Leo Burnett Hong Kong win the Grand Kam Fan for IKEA at the Hong Kong 4As Awards * IKEA (Campaign of the Year)
* IKEA (Corporate Branding Campaign of the Year
* IKEA (Best Use of Online Media)
* IKEA Honoured With Eurobest 2010 Advertiser Of The Year Award * Award by Queensland Government’s Environmental Protection Agency for IKEA’s Environmental initiatives (2007) * IKEA was named one of the 100 Best Companies for Working Mothers in 2004 and 2005 by Working Mothers magazine * ranked 96 in Fortune’s 100 Best Companies to Work For in 2006 and in October 2008 * IKEA Canada LP was named one of “Canada’s Top 100 Employers” by Mediacorp Canada Inc
* Diversity and creativity
* Family like Quality
* Cost Conscious
* Eco Friendly
* Social Initiative (main partners to IKEA Social Initiative are UNICEF and Save the Children)
Goals of the Company
* Implementing strategies in the organization
* Customer transportation and carbon footprint
* Working with suppliers on compliance
* Communicating sustainability accomplishments
* Integrating sustainability into core business
* Forestation and use of wood
* They have 28 distribution centers in 16 countries that supply to IKEA stores. * They have over 300000 distributors all around the world
* They possess the bargaining power
* IKEA prefers procuring their materials from low cost countries like China to reduce their overall cost
The IKEA Group supports the Rainforest Alliance to promote Forest Stewardship Council (FSC) forest management certification in China by educating foresters and stakeholders on the principles of FSC certification. The project provides key experts with the training, tools and materials to conduct Rainforest Alliance workshops in order to increase the level of sustainable forestry awareness in China.
* First stores were opened in Norway and Denmark
* Germany – IKEA’s biggest market ( 45 stores)
* United States (37 stores)
* France ( 28 stores)
* Presently IKEA has 316 stores in 45 countries
Top 5 sales countries
* Germany 19 %
* USA 11 %
* United Kingdom 11 %
* France 9 %
* Sweden 8 %
Benefits and Cost
* Gain from good quality at low cost
* Stylish and varied designs
* Friendly atmosphere
* One stop shopping
* All home solutions
* Kitchens, bathrooms, sofas, chairs, beds and textiles, rugs, floors, lamps, plants, and everything in between Displayed to show design possibilities with IKEA products * Assembled by the customer
* Crate and Barrel
* Pier 1
* Pottery Barn
* Furniture retailers utilizing similar store layouts * M.Jacobs
* Ashley’s Home Furnishings
* Ethan Allen
* Home Improvement Stores
* Home Depot
* Department Store’s
* Meier & Frank
* Discount Retailers
* Fred Meyers
Despite the challenging economic situation in the world, fiscal year 2009 was a good year for the IKEA Group. The Group opened 15 new IKEA stores and entered its 25th market, with the new IKEA store in Dublin, Ireland. Sales increased to 21.5 billion Euro, which is an increase of 1.4 per cent compared to last year.
The IKEA Group operates 267 IKEA stores in 25 countries. In addition there are 34 IKEA stores, that are owned and run by franchisees outside the IKEA Group, in 16 countries/territories
SWOT Analysis on IKEA Home Furnishings
* IKEA ranked 41st among the best global brands around the world in 2006 with a brand value of $8,763 * strong internationally known brand attracting key demographic customer groups * strong brands enhance customer loyalty and lead to repeat purchases * Cost Efficient, Low price, no compromise in quality
Unique business model
* they own industrial group, Swedwood, which produces wood-based furniture and wooden components * its operations cover every step of production, from forestry, saw milling and board manufacture to furniture * efficient productions which enable it to maximize productivity and minimize waste-generation * own design group which can makes sure that their products matches the trend of the industry * Good relationship with suppliers
* Maintained long-term partnerships with its suppliers
* Ensures that the company has access to high-quality materials at reasonable prices
* Market positioning statement is “Your partner in better living. We do our part, you do yours. Together we save money.” * Market on its strengths – based on offering a wide range of well designed, functional products at low prices * Catalogue- 175 million copies sold in 55 editions and 27 languages (2007) * Other promotions include their seasonal sales, internet deals and television advertisements * Flat packaging, which reduces shipping costs, minimizes transport damage, increases store inventory capacity, and makes it easier for customers to take the furniture home themselves, rather than needing delivery. But the original reason for it was competitive pressure from IKEA’s competitors to their suppliers, who actually boycotted IKEA, forcing IKEA to do it themselves. * Easy to assemble
* One stop shopping
* Friendly atmosphere and store layout
* Customized Service
* Restaurant in store
* IKEA exit bistro
* Swede Shop
* IKEA Restaurant
* Supervised Playroom
* Baby Care Room
* Food Warming Facilities
* Children’s Meals
* Office Planning
* Kitchen Planning
* Home Furnishing Advice
* Easily Located Products
* Browse through showrooms and try out products
* Delivery Services available or take home products immediately
* Not enough distribution channels. For eg: There are only three retail shops in Hong Kong * Problem of product recall due to faulty base. For eg: IKEA had recalled Parodi and Apelsin glass cases * IKEA is a global company, so product standards are difficult to maintain. Some countries where IKEA products are made do not implement the legislation to control working conditions * Swedish designs not appealing to American customers
* Limited Furniture Designs – IKEA had limited furniture designs which could obviously not cater to a wide range of customer needs and preferences
* IKEA are moving from International to global status through the development of Asia and Eastern European models * Targets all levels of the market, upper, middle and lower classes * Sourcing from China is one opportunity. Sourcing from low cost countries like China would reduce its costs and enable IKEA to concentrate on increasing its market share * Bright prospect of online sales
* With economic concerns over rising living costs and depleting disposable income there is an overall threat to the performance of the business in UK and American markets specifically * The regulatory environments across the globe vary and can affect how IKEA does business and its product costs, especially the use of natural resources PORTER’s 5 FORCE ANALYSIS
Threat of Buyers growing bargaining power
* There is a little power because of the existing low-price options * IKEA ensure that their customers in all aspects will be satisfied for quality service they provide * Focused their marketing approach on demands and needs of the buyer * IKEA uses their corporate responsibility as a good public image to their customers * IKEA Family -card as a membership
Threat of Suppliers growing bargaining power
* IKEA has its thousands of suppliers that set standards in delivering the materials. Because of the low-pricing, IKEA’s profit margin also affects the prices in raw materials than by prices in labor * IKEA has a wide network of 1300 suppliers. They carefully select the manufacturer of its products. The company has own production factories and designers which makes it less dependent on others * Bargaining power of supplier could be threat for the profit of the company
Threat of Substitute Products
* There is no specific product that can be a substitute for the furniture but IKEA at least, have to keep up with the latest trends, to avoid becoming out of style * Problems faced due to distribution channels
Threat of Intense Segment Rivalry
* The IKEA’s furniture competitors’ offers different styles and functionality * Conrin targets a new low cost in terms of furniture line; Crate & Barrel offers a furniture in a box which is subject in higher prices * Ethan Allen aimed at a more upscale market
* Wal-Mart is equipped in a big box furniture that is categorized under the general store must-have-items, but don’t have much of a style * IKEA is the most successful in delivering the complete package for the customers that reflects on weak rivalries * There will always be substitutes for furniture’s but IKEA competes with price and there isn’t competitors in same price range
Threat of New Entrants
* IKEA stores do not reach many small towns and this is an opportunity for the new competitors to move into small and midsize cities with smaller stores and less selection. But not easier in city because new entrants have to establish a vast supply chain and create a unique brand name * The furniture market is already highly competitive – the risk of new entrants is not extremely high – huge capital needed to start the business
Where do they want to be?
Their challenge and objective
“It has been a challenging year in which we have had to adapt to changed market conditions,” says Kerri Molinaro, President, IKEA Canada. “We know that many of our customers have less money to spend and our low price concept is therefore more relevant than ever. Our customers have recognized that in tough times IKEA has the better home furnishing offer.”
IKEA want to increase the return on investment for its operations, which is a substantial investment, and remain ahead of the competition in terms of business strategy. IKEA needs to ensure that its business is targeted to reach people who are likely to be or become IKEA customers in terms of their demographic attributes and their likelihood to travel to the store. IKEA
requires a solution to maximize their return on investment while expanding their appeal and maintaining their dominant market position.
Specifically IKEA’s key objectives with respect to INDIA are to:
* Identify target consumer types and geographic areas for distribution of catalogue * Identify types and areas with poor sales potential
* Increase sales return on its operation’s expenditure
* Develop business strategy
How might they get there?
IKEA will need to look at joint ventures and strategic alliances to become successful in the Indian market. Since the government requires that local business operations require 51% control by Indian nationals, IKEA’s first step will be to find franchise owners. These in turn will have to form alliance and joint ventures to raise enough capital to develop the links necessary to form a successful entity. In high-risk markets (defined as those that are not similar to Scandinavian markets) IKEA’s local market strategy is to develop supplier links in the host country. This is meant to reduce the strategic risk that may result from political, legal and financial issues. By developing a relationship with local suppliers, the suppliers can provide valuable input into the opportunities and threats. Joint Ventures mean even more. They establish that the local owner/operators become an integral part of the stakeholder group.
The cost of establishing a new store (approximately 22,000 items) is quite high when considering:
* Building acquisition, layout and design
* Sourcing franchise owners and human resources
* Establishing local supplier links
* Advertising and promotion of the new location (catalogues are expensive)
* Stocking the new store
The advantage of borrowing money locally is that the cost of borrowing will be protected from inflation and exchange rate fluctuations. Investment money taken from reserves of other operations may not carry any interest cost and therefore be a cheaper source of investment. In the case of India, if IKEA decides to franchise its operations there, the problem of financing the operation is taken care of through franchising fees and royalties. Return of profit/royalties to IKEA of Sweden could be facilitated in the transfer of product produced in India thus increasing the marginal return from everyone involved.
Profits in India should be maintained at a similar level to other countries. Since the per capita income of Indian peoples is substantially lower than other markets, product will have to be modified to lower price categories and volumes will have to increase to offset the difference. Except in the largest cities, operation costs should be lower than Western Europe. Labor costs are substantially lower in India, but the IKEA store concept requires little human resources, so cost reductions must rely on other overhead such as store, warehousing, power, taxes and advertising. Probably the most effective method for cost reduction is to source a higher percentage of goods from India. Even Scandinavian designs could be reproduced in India.
IKEA does not have its own manufacturing facilities. Instead, it is using sub contracted manufacturers all over the world for supplies. All research and development activities are, however centralized in Sweden. In order to maintain low cost, IKEA shoppers are Pro-sumers – half producers, and half consumers. In other words, they have to assemble the products themselves. To facilitate shopping, IKEA provides catalogs, tape measures, shopping lists and pencils for writing notes and measurements. Car roof racks are available for purchase at cost and IKEA pick-up vans/mini trucks are available for rental.
Effective marketing through catalogues usually attracts the customer at first, what keeps customers coming back is good service. IKEA believes that a strong in-stock positioning which the most popular style and design trends are correctly anticipated is crucial to keep satisfied customers. For that, IKEA depends on leading-edge technology. According to IKEA’s logistics manager, “there are a lot of Just-In-Time concepts built in to how we’re trying to do business” (Chandler,1993: 12). IKEA has developed its own global distribution network. By utilizing control points in the distribution cycle, the firm is able to insure timely delivery of products to retail stores all over the world. Internationally, these stores range in size from 20,000 to 30,000 square feet in Hong Kong and in Singapore to 500,000 square feet in Stockholm, Sweden. IKEA has over 1,800 suppliers located in over 50 different nations (Retail Business, 1995: 78).IKEA’s, marketing manager believes that Consumer tastes are merging globally
In one example, IKEA, which has been importing the “streamlined and contemporary Scandinavian style” to the United States since 1985, found at least one opportunity to export an American style to Europe, as Europeans are picking up on some American furnishing concepts. In order to respond to this new demand, IKEA now market “American style” furnishings for the European market
Advertising as being a producer of low price and high quality product IKEA’s success is based on the relatively simple idea of keeping the cost between manufacturers and customers down. According to Ingvar Kamprad, the founder of IKEA; “To design a desk which may cost $1,000 is easy for a furniture designer, but to design a functional and good desk which shall cost $50 can only be done by the very best. Expensive solutions to all kinds of problems are often signs of mediocrity.” (Chandler, 1993: 12)Costs are kept under control starting at the design level of the value-added chain. IKEA also keeps costs down by packing items compactly in flat standardized embalages and stacking as much as possible to reduce storage space during and after distribution in the logistics process (Economist,1994: 101).
IKEA management strategy
IKEA is a very successful multinational corporation, which indicates that earlier discussed focused generic, or long-term strategy of cost leadership and product differentiation has served it well. IKEA approaches unknown, small, high risks markets by franchising. So this company actively expands in this field as well. IKEA has a lot of subsidiaries in many countries of the world. Franchisee shaves to carry basic items, but have the freedom to design the rest of the products.
Few countries in the world have such an ancient and diverse culture as India. India’s culture has been enriched by successive waves of migration, which were absorbed into the Indian way of life. The diversity lays the continuity of Indian civilization and social structure from the very earliest times until the present day. Modern India presents a picture of unity in diversity to which history provides no parallel. Moreover, the Indian Council for Cultural Relations (ICCR) has been working to project Indian culture abroad and to bring to India the rich manifestations of international culture. It has thus become a major vehicle of international cultural exchange.
IKEA can also focus on the Indian’s process of development, which has been accompanied by significant social changes and an increasing awareness about issues. This period has also seen the burgeoning of the voluntary movement in India. Today, the Government makes constant attempts to promote values like democracy and independence and India is working to have equal opportunities in all spheres of life. We cannot rule out the Indian Art, because it is also an Art of social, political and religious influences. It changed and evolved with the evolution of a civilization, which is full of remarkable innovation.
Finally, IKEA can make point on Indian religion because it is another way of life and an entire part of Indian tradition. So in doing business with India, IKEA have to make attention with the culture and the communication (verbal and non-verbal)because the communication can be interpreted in different meanings and can provoke some mistakes, misunderstanding and also some troubles. So, the firm has to be careful with the context where it decides to set up its business
Which is the best Way?
How can they ensure arrivals?
Together with innovative changes in the value chain, where consumers become Pro-sumers and suppliers are turned into consumers, the concept of marketing high quality products at low cost through a focused generic strategy, intended for the globally emerging middle-class has served IKEA well. Centralized control and product standardization is two necessary components of the firm’s long-term strategy. In addition, the company has facilitated its international expansion through owned subsidiaries and franchises. Future localization pressures will force IKEA to change its global strategy in order to become more sensitive to local demands. Greater emphasis on joint ventures and strategic alliances represent possible vehicles to further build on IKEA’s focus strategy. A new transnational oriented organizational structure would further provide the necessary infrastructure needed to support such vehicles towards true internationalization. This in turn would impact on the present homogenous Scandinavian culture and introduce new values, ideas and, perhaps, broaden IKEA’s core competencies.