Synopsis
The case study is to discuss about the different strategy used by IKEA to approach their customers. It is also talking about the localization concept from a global company based on the cultural demand from different countries worldwide. IKEA is also famous for their less expensive furniture, has some other strategies to “reach” the customers based on their needs. 4 Ps concept plays a very important role on IKEA’s success besides the way of shopping which is differ from all other their competitor.
Company Background
1920s
At the age of five Ingvar Kamprad starts selling matches to his next door neighbors and by the time he is seven, he starts selling to further neighborhood, using his bicycle. He buy matches in huge numbers cheap and re-sell them individually at a very low price but still make a good profit. From selling matches he expands to selling flower seeds, greeting cards, Christmas tree decorations, and later pencils and ball-point pens.
1940s-1950s
The roots of a furniture dealer, Ingvar Kamprad is entrepreneurial in developing IKEA into a furniture retailer. This period sees the exploration of furniture design, self assembly, advertising, the use of a catalogue and a showroom to reach the many people.
1960s-1970s
The IKEA concept starts to take place. New IKEA stores opened and hero products are developed such as POÄNG, KLIPPAN and BILLY bookcase. It is a time where concept takes shape and is documented in Ingvar Kamprad’s The Testament of a Furniture Dealer.
The Term Paper on Internal and External process in IKEA
IKEA is a privately-owned, international retailer of home products. The company sells flat pack furniture, accessories, and bathroom and kitchen items in their retail stores globally. The company is the market leader in the flat-pack design furniture and sells at affordable prices. IKEA is now the world’s largest furniture manufacturer. IKEA was started in 1943 by Ingvar Kamprad in Sweden ...
1980s
IKEA expands dramatically into new markets such as USA, Italy, France and the UK. More IKEA classics arrive such as LACK and MOMENT. IKEA begins to take the form of today’s modern IKEA.
1990s
IKEA grows more by introducing Children’s IKEA and the focus is on home furnishing solutions to meet the needs of families with children. The IKEA Group is formed and responsibility for people and the environment is seen as a prerequisite for doing good business.
2000s
IKEA expands into new markets such as Japan and Russia. Everything for the bedroom and kitchen is explored and presented in coordinated furnishing solutions. This period also sees the successes of several partnerships regarding social and environmental projects.
IKEA’s Vision and Business Idea
IKEA’s vision is to create a better everyday life for the many people. Their business idea supports this vision by offering 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.
IKEA’s mission: People have very thin wallet. We should take care of their interests.
IKEA’s Product RangeIngvar Kamprad
The IKEA product range focuses on good design and function at a low price. It offers home furnishing solutions for every room in the home. It has something for the romantic at heart, the minimalist and everyone in between. It is coordinated so that no matter which style you prefer our designers and product developers work hard to ensure that our products meet your day-to-day needs and eliminates the unnecessary.
IKEA’s Low Prices
Low prices are the cornerstone of the IKEA vision and our business idea. The basic thinking behind all IKEA products is that low prices make well-designed, functional home furnishings available to everyone. We are constantly trying to do everything a little better, a little simpler, more efficiently and always cost-effectively.
A better everyday life
We have taken the straightforward approach to the furniture business, by starting with developing furniture with the price tag in mind. This is the IKEA way, to maximize the use of raw materials in order to fulfill people’s needs and preferences by offering quality products at an affordable price.
The Research paper on The Study of Ikea’s Business Strategy
... percent lower than completely assembled competing products. Ⅱ. Price strategies It is the low price that based of Ikea’s ideal, business inspiration and conception (Kumar, Nirmalya. 2006). ... “the same price products, whose design cost less”. Ikea created “module” type of furnishings designing technique .Ikea furniture is divided into assembly goods, distributed into ...
Social & Environmental Responsibility
In 2004, IKEA published their first Social and Environmental Responsibility report. IKEA believes good society is good for IKEA with the passionate to create successful business in a responsible manner. That’s the reason sustainability is very important for IKEA’s strategic direction. Prioritizing sustainability drives further innovation and development. Managing resources with new ways to do things and developing skill set and expertise are very important in driving IKEA’s business.
As a company with low price product must be a low cost company which include earth’s limited resources usage in a good manner. IKEA has made tremendous and valuable contribution across the world. Forests of Siberia, cotton fields of India, homes in New York, Lisbon and Shanghai are good examples of sustainability.
IKEA blue bags are big, sturdy and sustainable. Out with plastic bags! In with reusable bags!
SWOT analysis
IKEAs objectives are easily achieved via their SWOT analysis and it is a strategic planning tool too. It helps the business to focus on key issues. SWOT is the first step of planning based on the Strengths, Weaknesses, Opportunities and Threats involved in a business.
Strengths and weaknesses are internal aspects and it is within the control of the business. They may refer to aspects of marketing, finance, manufacturing or organization. Opportunities and threats are external factors and 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.
Strengths
Strengths could include a company’s specialist marketing expertise or its location. IKEA’s strengths include:
a.Low cost structure
At any economic situation, IKEA able to maintain the profit margin due to their “affordable” products. IKEA buy the products in bulk from suppliers with a lower price and get their customers to assemble the product by themselves, which gives customer a lower price product. Their long term partnership with their suppliers also ensures they have access to high quality material at reasonable prices. Their furniture is stylish, modern and functional. The company’s low cost structure is able to meet the customers’ need at any point of economic condition.
The Research paper on Ikea Product Life Cycle
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b.Sustainability
IKEA’s cost effective and Social & Environmental Responsibility concept is a unique strength of IKEA compare to their other competitors. IKEA use renewable, reusable and recycled materials as much as possible. Example, IKEA’s catalogues are printed in chlorine-free paper and contain at least 10% to 15% post consumer waste. All of their products come in cardboard, compact packaging for easy use and recyclability. These make IKEA
outstanding from their competitors.
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.
Some of the opportunities that IKEA takes advantage of through its sustainability agenda are: a.IKEA can further invest on the “go green” movement and IKEA’s customers’ desire to have less of an impact on the environment. This concept is also denoting the demand for cheaper and greener products.
b.Sustainability can be further maintained by offer tips and ideas online for customers to create a more sustainable home in any part of the world. It can also help to reduce carbon footprint by packaging in less material. .
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:
a.The size
IKEA is a warehouse style shopping centre. Because of their huge size, there are not enough people in a smaller region to maintain a store at that size. Also, IKEA find it difficult to penetrate a small market because they offer only home furnishing. Unlikely company like Target offer home furnishing besides clothing, groceries and also technology.
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b.The need for low cost products.
This needs to be balanced against producing good quality products too. They are also need to differentiate itself and its products from other competitors. IKEA believes there is no compromise between being able to offer good quality products and low prices.
c.Communication
Communication or updates on their environmental activities with its consumers and stakeholders must be consistent and up to date. 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:
a.Competition
More competitors are now entering the low price household and furnishings markets. Example Home Depot is the 2nd largest retailer in the world and also a huge threat for IKEA. Home Depot also provides hardware, lumber, kitchen appliances, furniture and many other products. IKEA needs to reinforce its unique qualities to compete with this kind of “giants”.
Question 1 – What are some of the things IKEA is doing right to reach consumers in different markets? What else could it be doing?
IKEA Group operating 301 stores in 41 countries worldwide (IKEA statistics 2012) including franchisees. IKEA’s marketing strategy starts with their business concept as stated in IKEA’s vision statement: The IKEA vision is to create a better everyday life for the many people. We make this possible by offering a wide range of well-designed, functional home furnishing product at prices so low that as many people as possible can afford them. (IKEA Corporate Website)
IKEA has a principle to work in the same way in every country. This standardized approach provides operational advantages besides some disadvantages due to the different markets. Based on the marketing mix which starts with product strategy, product covers more than the physical goods that a company wants to sell. It is the goods & service combination that a company offers to the target market.
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Thus, IKEA offers a whole range of product with the pricing which supposed to be the same (95%) with very small adaptations for all countries and in all stores worldwide. The pricing of products are comparatively low to what the consumers can find in a competing store. The basic aim of IKEA is to deliver high value at a low price. IKEA has been cutting price in most of the countries.
IKEA is also source it’s products from various companies all over the world rather than a small number of suppliers like many of the retailers do. IKEA has 1,300 suppliers from 53 countries, who can supply products as per local taste based on their needs.
Most of the IKEA stores are placed out of city centre, out of town location due to a lower land cost and traffic access. Exceptional for UK stores (Coventry – 2007 & Southampton – 2009) located in city centre as a response to UK government restrictions blocking retail establishment outside city centers. It is a seven floors store with a different flow compare to other IKEA stores. Normally the stores will be 2 floors with a car parking availability and also comes with restaurants. The restaurants sell foods according to the local taste and also it opens daily before the rest of the stores. Example in Canada, breakfast includes eggs, sausage, and hash browns and various add-ons like bacon and pancakes at additional costs. In the United States, the local variation serves scrambled eggs, bacon, country potatoes and choice of Swedish pancakes or French toast sticks.
The selling environment and service of IKEA stores are also adjusted to fit with local taste. Example like DIY concept is fully accepted by Sweden and UK where the consumers believe that’s the price they pay for the low prices products. Whereby in China, DIY concept is new to them because of the cheap labor and the prices are also not perceived as generally low.
Q1.1What else could it be doing?
1.Developing competitive advantage – because IKEA has a low cost structure, they should be able to expand online market easily without incurring too much additional costs. IKEA also should look at an expansion to the West Coast, particularly California. Also, expansion into regions with enough people to sustain a store of their size. 2.Developing a strategic focus – going online is not only reaching potential customers in less populated area, it is also will help customers to catch up with competitors. Besides that, younger people (Gen Y) willing to buy online more compare to the older people.
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Question 2 – IKEA has essentially changed the way people shop for furniture. Discuss the pros and cons of this strategy.
Factors that encourage customer’s choice of visit to IKEA – Pros
i.Social motives for the customer – the shoppers go in group since the outlet is huge and it will take time to shop. Also the location is far from city. It’s a kind of short trip instead of shop-visit which consume a lot of time and they prefer to go in a group (friends or family).
ii.Availability of other services and amenities – Restaurants (food and beverages) and baby-sitting services within the stores which gives a greater convenient to all customer. Parking is also not an issue since most of the stores located far from the city.
iii.Information availability – online info is more useful. Customers can surf online catalogues in various languages for inspiration and planning purpose before go to the store. This will also help them to catch up with their competitors. Younger generation will be also attracted with this online concept because they are the IT savvy generation compare to the older generation who is still a little “doubt” about buying online. iv.Access – Operating hours are good. Long hours on weekend very helpful for those customers work odd hours and also busy on weekdays.
v.Speed of delivery – no waiting time as they go and pick up their products.
Factors that discourage customer’s choice of visit to IKEA – Cons
i.Design – the color and bulbs used make the environment dull. Less store assistants and the routes are very long also make customers not really prefer to shop in IKEA. Customers feel bored when they are required to follow one special route instead go direct to the product that they want to purchase.
ii.Product availability – difficult to find, stored somewhere else, arrange in an illogical order. Also, ONLY furniture available in IKEA unlikely Home Depot provides all kind of products / items beside furniture.
iii.Amount of shopping time – it is time consuming. The route makes them to go through all products and to get the product seen before must go a big turn again. Also, customers ended up buying more than planned as going thru all the display products.
iv.Assemble yourself – most of the IKEA products are need to be assembled by customers themselves. If you’re a handyman, or someone experienced with tools, it is fine. But for the normal men or even women, assembling some pieces might be slightly difficult. Also it can be ended up doing something wrong.
Conclusion
In conclusion, IKEA is a good place to shop furniture with a lot of different designs. Less expensive furniture made IKEA grow consistently around the world. IKEA has their own way of sustaining their business for decades. The overall identity of IKEA is based in Småland, historical and thrift are strong characteristics of the region and its people. All IKEA policies live up to this standard from the products that they sell.
Exhibit 1 – Facts & Figures FY2011
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
