Synopsis
This case study is to deliberate about IKEA’s marketing strategy in reaching out customers. Also discussing about IKEA’s business idea and IKEA follows a quite traditional pattern of internationalizing and also drives the localization thoughts in different market place to stay competitive. Their vision “To create a better everyday life for the many” and their ultimate business idea “ To offer a wide range of well designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them” actually has inspired many shoppers and influence the way people shop.
IKEA’s Background
IKEA is an internationally known home furnishing retailer. It has grown rapidly since it was founded in 1943. The company was founded by Ingvar Kamprad when he was 17 year old boy. At that time, IKEA was one–man mail order furniture company. Originally, it sold pens, wallets, pictures frames, watches, and jewellery. Kamprad had a habit of going into wood factories to look at the “off cuts” which mean timber to be thrown away as waste.
He made good use of these no value timber an created well and extraordinary priced products. He opened the IKEA store in Sweden in 1958. Today it is the world’s largest furniture retailer, recognised for its Scandinavian style. The majority of IKEA’s furniture is flat-pack, ready to be assembled by the consumer. This allows a reduction in costs and packaging. IKEA carries a range of 9,500 products, including home furniture and accessories. This wide range is available in all IKEA stores and customers can order much of the range online through IKEA’s website.
There are 18 stores in the UK to date, the first of which opened in Warrington in 1987. In July 2009 IKEA opened a store in Dublin too – it’s first in Ireland. IKEA stores include restaurants and cafés serving typical Swedish food.
They also have small food shops selling Swedish groceries, everything from the famous meatballs to jam. Stores are located worldwide. In August 2008 the IKEA group had 253 stores in 24 countries, with a further 32 stores owned and run by franchisees. It welcomed a total of 565 million visitors to the stores during the year and a further 450 million visits were made to the IKEA website. IKEA sales reached 21.2 billion Euros in 2008 showing an increase of 7%. The biggest sales countries are Germany, USA, France, UK and Sweden. In 2008 IKEA opened 21 new stores in 11 countries and expects to open around 20 more in 2009 as part of its strategy for growth. Reasonable prices are one of the keystones of the IKEA concept and help to make customers want to buy from IKEA. This low price strategy is together with a wide range of well designed, functional products. IKEA’s products cater for every lifestyle and life stage of its customers, who come from all age groups and types of households.
This is vital in times when the retail sector is depressed, as it increases IKEA’s potential market. Since it was founded IKEA has always had concern for people and the environment. The IKEA vision ‘to create a better everyday life for the many people’ puts this concern at the heart of the business. IKEA has reacted to the public’s rising concern for sustainability in its choice of product range, suppliers, stores and communication. It has also spotted business potential in providing sustainable solutions. IKEA’s concern for people and the environment inspires it to make better use of both raw materials and energy. This keeps costs down and helps the company to reach its green targets and have an overall positive impact on the environment.
SWOT analysis
IKEA’s goals of sustainability and environmental design are central to its business strategy. It has launched a new sustainability plan to take the company through to 2015. This will combine social, environmental and economic issues.
IKEA uses SWOT analysis to help it reach its objectives. This is a strategic planning tool. It helps the business to focus on key issues. SWOT is the first stage of planning and looks at the Strengths, Weaknesses, Opportunities and Threats involved in a project or business venture.
Strengths and weaknesses are internal aspects. This means that they are within the control of the business. They may refer to aspects of marketing, finance, manufacturing or organisation. Opportunities and threats are external factors. This means that they are outside the control of the business. These may include the environment, the economic situation, social changes or technological advances, such as the internet. A business can create opportunities and counter threats by making the most of its strengths and addressing its weaknesses. For example, one of IKEA’s key strengths is its strategic aim to use no more material than necessary in the production of each item. In addition, it develops its product plans to increase its use of waste or recycled materials.
• One particular table, the NORDEN table, uses knotty birch wood. The knots in this wood usually mean it is rejected by other retailers and manufacturers as unsuitable for use. However, IKEA has made the knots part of its design feature. • OGLA chairs are made using wood waste from saw mills and LACK tables use a ‘sandwich’ of stiff card between wood sheets to reduce the amount of solid wood needed. Strengths Strengths could include a company’s specialist marketing expertise or its location. They are any aspect of the business that adds value to its product or service. IKEA’s strengths include: * a strong global brand which attracts key consumer groups. It promises the same quality and range worldwide
* its vision – ‘to create a better everyday life for many people’
* a strong concept – based on offering a wide range of well designed, functional products at low prices
* a ‘democratic design’ – reaching an ideal balance between function, quality, design and price. IKEA’s ‘Cost Consciousness’ means that low prices are taken into account when each product is designed from the outset. These strengths contribute to IKEA being able to attract and retain its customers. One way IKEA measures its strengths is the use of Key Performance Indicators (KPI). KPIs help IKEA to assess the progress of its vision and long-term goals by setting targets and monitoring progress towards these. An example of one of IKEA’s KPIs is the percentage of suppliers that are currently IWAY approved. The IWAY is the IKEA Way of Purchasing Home Furnishing Products. This guideline defines the social and environmental requirements IKEA expects of its suppliers.
IKEA has strengths right through its production processes:
• Increasing use of renewable materials – IKEA improved its overall use from 71% in 2007 to 75% in 2009. • ‘Smarter’ use of raw materials – IKEA increased the use of recycled or reclaimed waste products in energy production across all stores from 84% in 2007 to 90% in 2009. • Volume commitments – IKEA believes in creating long-term partnerships with its suppliers in order to achieve this. By committing to buying large volumes over a number of years IKEA can negotiate lower prices.
This also benefits the suppliers because they enjoy the greater security of having guaranteed orders. • Economies of scale – for instance, bulk buying at cheaper unit costs. • Sourcing materials close to the supply chain to reduce transport costs. • Delivering products directly from the supplier to IKEA stores. This slashes handling costs, reduces road miles and lowers the carbon footprint. • Using new technologies – for example, IKEA’s OGLA chair has been in its range since 1980. The chair has changed through the years to reduce the amount of raw materials needed.
Opportunities
A business uses its strengths to take advantage of the opportunities that arise. IKEA believes that its environmentally focused business conduct will result in good returns even in a price sensitive market. As the company states: ‘There is a true business potential for IKEA in providing solutions that enable customers to live a more sustainable life at home. IKEA is developing effective solutions for customers in order to support them recycling or reusing used products, aiming at no products ending up at landfill and the recycled materials used in producing new IKEA products.’ Some of the opportunities that IKEA takes advantage of through its sustainability agenda are: • a growing demand for greener products
• a growing demand for low priced products. Trends in the current financial climate may result in consumers trading down from more expensive stores • demand for reduced water usage and lower carbon footprints. IKEA has a number of areas of focus to its work with sustainability, each of which it supports in various ways: 1. Solutions for a sustainable life at home – IKEA gives online tips and ideas for this. 2. Sustainable use of resources. IKEA aims for zero waste to landfill, wastewater treatment and programmes to reduce its use of water.
3. Reducing carbon footprint. IKEA aims to reduce energy use, use more renewable energy, cut its use of air transport and reduce packaging. Its green transport initiative includes an aim to reduce business flights by 20% in 2010 and 60% by 2015. 4. Developing social responsibility. IKEA’s policy includes support for charities such as the World Wildlife Fund, UNICEF and Save the Children. 5. being open with all its stakeholders. This involves building trust through good communication with consumers, co-workers, key opinion formers and the press. Being sustainable is a central part of IKEA’s image.
Weaknesses and threats
Weaknesses
IKEA has to acknowledge its weaknesses in order to improve and manage them. This can play a key role in helping it to set objectives and develop new strategies. IKEA’s weaknesses may include: • The size and scale of its global business. This could make it hard to control standards and quality. Some countries where IKEA products are made do not implement the legislation to control working conditions. This could represent a weak link in IKEA’s supply chain, affecting consumer views of IKEA’s products. The IWAY code is backed up by training and inspectors visiting factories to make sure that suppliers meet its requirements.
• The need for low cost products. This needs to be balanced against producing good quality. IKEA also needs to differentiate itself and its products from competitors. IKEA believes there is no compromise between being able to offer good quality products and low prices. • IKEA needs to keep good communication with its consumers and other stakeholders about its environmental activities. The scale of the business makes this a difficult task. IKEA produces publications in print and online (for example ‘People and the Environment’) and carries out major TV and radio campaigns to enable the business to communicate with different target audiences.
Threats
If a company is aware of possible external threats, it can plan to counteract them. By generating new ideas, IKEA can use a particular strength to defend against threats in the market. Threats to IKEA may stem from: • Social trends – such as the slowdown in first time buyers entering the housing market. This is a core market segment for IKEA products • Market forces – more competitors entering the low price household and furnishings markets. IKEA needs to reinforce its unique qualities to compete with these • Economic factors –the recession slows down consumer spending and disposable income reduces.
IKEA addresses these issues in many ways. It manages weaknesses and threats to create a positive outcome. Social trends: IKEA is building online help to guide customers to a more sustainable life. Here it can focus on home improvement in the slowing housing market. It supports customers with tips and ideas on its website to reduce their impact on the environment. This will also save them money. Staff is trained on sustainability, both on what IKEA is doing and how they can take responsibility to become sustainable for themselves. Market forces: IKEA is large enough to enjoy economies of scale. This lowers average costs in the long run through, for example, better use of technology or employing specialized managers. Economies of scale also give a business a competitive edge if cost savings are then passed on to customers in the form of lower prices.
This puts up high barriers to entry for smaller companies entering the market. Economic factors: IKEA’s low prices create appeal amongst its customers in tough financial times. It is vital to keep prices as low as possible when the retail sector is depressed. IKEA’s pricing strategy targets consumers with limited financial resources. Its products will also appeal to those with higher budgets through good quality and design. The company must ensure that it is always recognised as having the lowest prices on the market in the future. Communication plays an important role here.
Question 1
What are some of the things IKEA is doing right to reach consumers in different markets? IKEA currently operates in 37 countries, owning 301 stores worldwide and emerged to be world largest furniture retailer. Therefore apply multiple strategies and approach in different countries to stay competitive and stable in all times without compromising on the vision “To create a better life for the majority of people” and the market positioning statement “Your partner in better living. We do our part; you do yours. Together we save money” In the merchandise area, IKEA has generally offers same products almost 95% in many countries where they have business established. In China and generally the increasing local sourcing for all products in the assortment has a greater impact on the pricing.
Adversely, in Sweden and UK centralised sourcing systems and supply of bulky products from nearly area is maintained. All the localization approach has directly or indirectly influenced on the price policy, IKEA has cutting the pricing dramatically and able offer affordable price to the customers. Besides that, the locations of the stores are well out of the city centre and suburban area in many part of the world except in China is closer to city. And most of it comes with two floors with ample of parking bays outside the store, restaurant, and Sweden shop. And in China, consumers do not have excess to cars like European and US customers have, therefore the connectivity is utmost vital, the customers able to use the public transportation to reach the IKEA stores.
This adjustment in finding appropriate locations in different market place signifies IKEA’s differentiate strategy. IKEA’s advertising and promotions is the base and great platform especially in Sweden, UK which embrace local taste, humour and position but vice versa in China is focussed for brochure distribution concept. Besides that promotions increasing run from store and in addition the web (IKEA family) is a tool that increasingly used for new markets as information and communication tool, which offers additional benefits such as welcomes in cuppa at the IKEA Restaurant enjoy cost savings and earn Bonus Points with your purchases.
What else could it be doing?
IKEA should enhance the clarity in information regarding policies related to home delivery since many customers visiting IKEA are in need of that type of service to be able to bring their purchases home. IKEA need to preserve their ability to constantly up date and re-invent their products assortment since studies revealed that dissatisfied customers are willing to overlook previous bad experience mainly because IKEA always tend to offer new and appealing products. IKEA should re –look into their actual store environment to enable customer to find what they look for. IKEA should consider applying more technical means of help to assist the customers.
Question 2
IKEA has essentially changed the way people shop for furniture. Discuss the pros and cons of this strategy. The differentiate strategy apply by IKEA, the company gives name for each models rather than product codes and numbers. IKEA believe that names are easier to be remembered such as BILLY, LACK and etc. etc. These somehow make things easier for end-users and also working staff fix any arising issues especially in furniture sales and services. The company offers low prices as it sources from all over the world for inexpensive furniture from many suppliers without compromising on the quality of the product. IKEA commits buying large volumes over a number of years IKEA able to negotiate lower price. This ensures the lowest price possible, and savings that are passed on to the consumers. Today IKEA integrated with approximately 1,300 suppliers from 53 countries. And the price is low and affordable because most of the items come in boxed.
The customer has to completely assemble them at home and customers able to refer the Instructional diagrams which can be found in the boxes. The IKEA store offers “everything under one roof” most of it available for instant takes away. IKEA offers service where customers need it and but let customers to make most decisions themselves. This convenient shopping, on the other hand, this means the customers or end user able to decide and choose the right products as IKEA stores display them properly, describing them accurately besides having a simple and easy return policy. IKEA stores are strategically located, out skirt or out of the town area. Most comes with sufficient parking bays, two floors, parking outside stores. And most of the IKEA stores operates long hours and furnish with restaurants. This encourages customers to visit the store with family to shop. The availability food and beverage and baby-sitting services are another factor that has changes the way people shop.
The restaurants provide customers a place to eat and relax while shopping. There are also bistro areas which sell localised snacks such hotdogs in the UK, baguettes in France and pizza in Italy. The IKEA food markets are also in every store and encourage customers to take home taste of Sweden. This has made shopping in IKEA more convenient, enjoying and delighting. Female customer felt the “DIY concept” is troubling and practical for them. Customers have to pick things up in store, carry to their car, take home and assemble or “do it yourself” concept are hassle and inconvenient when it comes furniture items. Furthermore for some who don’t use tool often, assembling some furniture set might be to some extent complicated and hassle. The store design is very sporadic and dull.
The format made in such a way that the customer has to walk through a long route instead going directly to purchase the right product has some disadvantages and seems burdening. And with gloomy lighting system and there are not many store assistance makes shopping in IKEA unpleasant and time consuming. Wide range of products and huge assortment and variety may be confusing the consumers. In addition, time taken to decide on buying is longer as checking on specification, performance; suitability and durability may lead to window shopping only. Customer except the product the looking for to be in a specific part of the store but found that it was stored someplace else. They felt that products –displays follow an illogical order, where it is hard to determine exactly where to look for a specific type of product.
Conclusion
The IKEA case shows that it is impossible to work a fairly standardisation and adaptation concept also on the markets that are different from ones were the business concept have originated. The business concept that is exported and in order for that to be the same all over the world, marketing strategies sometimes need to be adopted rather than standardised. The IKEA offers the best products, low price policy, the presentation of the range and the information that disseminated and contribution to the brand image has eventually has strengthened the business sustainability. The overall task of IKEA marketing communication is to build the IKEA brand and inspire people to come to the store.
References
1. The Testament of a Furniture Dealer – A Little IKEA Dictionary by Ingvar Kamprad (founder). Published by Inter IKEA Systems B.V. 2007
2. Standardized Marketing Strategies in Retailing? IKEA’s marketing Strategies in Sweden, the UK and China by Steve Burt, University of Stirling, 2008.
3. IKEA Facts and Figures -2011 http://www.ikea.com/ms/en_AU/pdf/yearly_summary/Welcome_inside_2011.pdf
4. Student Info – IKEA http://www.ikea.com/ms/en_GB/about_ikea/press_room/student_info.html
5. The IKEA Experience – A case study on how different factors in retail environment affect customer experience by Rebecka Isaksson & Mirela Suljanovic.
6. History – IKEA http://www.ikea.com/ms/en_GB/about_ikea/the_ikea_way/history/index.html
7. Introduction – SWOT analysis and sustainable business planning – IKEA case studies and information The Times 100 http://businesscasestudies.co.uk/ikea/swot-analysis-and-sustainable-business-planning/introduction.html
8. IKEA International A.S. History & Company Profile
http://www.fundinguniverse.com/company-histories/ikea-international-a-s-history/
9. Kerry Capell, “IKEA: How the Sweedish Retailer Became a Global Cult Brand,” BusinessWeek, November 14, 2005
10. IKEA group corporate site n.d., About the IKEA Group. Cited from (08.05.2009) http://193.108.42.168/?ID=25
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