The Company
IKEA began in the early 1940’s, when Ingvar Kamprad the founder of IKEA sold general household products which people demanded. Due to his success he opened up a showroom and began designing his own furniture range which led to innovation and low costs. The real success came when they realised they could flat pack the furniture so transporting goods to IKEA and for the customer would be easier. This differentiation was their marketing tool which made them a household name on global scale.
IKEA a Swedish retailer offers a large range of stylishly designed, functional home furnishing products at low prices. This is the single idea at the heart of everything IKEA does, including the way they produce, buy products and the way they sell them in IKEA stores around the world. They produce high quality products at low prices and this is done by cost-efficient and innovative methods.
Sales and Profit Trends
This graph shows that between 1995 and 2001, IKEA had major success because there is an increase of 6.4 billion in profits. This might due to all the heavy promotion but also because of new stores opening around the world. The profits have increases from 2001 onwards it has not been a very substantial increases compared to 1995 and 2001 but it just shows that between a space of ten years IKEA has achieved great success.
The Market Environment
IKEA operates on a global level with 231 stores in 33 countries. The top five countries with the most sales are Germany 19%, USA 11%, UK 11%, France 9%, and Sweden 8 %.
(IKEA 2005). This shows that IKEA products have an international appeal and are targeted at many markets. The main objective of IKEA is to produce low priced products of high quality. Its products are produced from resources from all around the world which gives them a competitive cost advantage. The large, yet simple retail stores on the outskirts towns makes them easily accessible for customers and distribution. Trying to achieve the lowest costs in production and distribution means that they have incorporated a cost-leadership strategy this has been embedded into the IKEA’s culture through efficient processes. IKEA works on the idea “pile them high, sell them cheap” idea (Marcousè et al 1999 pp164). The profits may initially be low but with high turnover it makes a healthy profit. The reduction in price does not mean that the quality must be compromised.
The Five Forces Model
This model helps to contrast a competitive environment. As the diagram shows IKEA is working in a competitive environment with large and small furniture retailers trying to gain market share as barriers to entry are very weak. Customers are in a strong position as they have more bargaining power and negotiate for goods which meet customer needs. A wrong move could have a detrimental affect with your competitors moving ahead of you.
Competitive Environment
IKEA's strategic positioning is unique. Few furniture retailers have engaged in long-term planning or achieved economies of scale as European furniture retailers are smaller than IKEA. Even when companies have joined forces as buying groups, their operations have made it difficult for them to achieve the same degree of co-ordination as IKEA. IKEA offers limited customer assistance but creates opportunities for customers to choose transport and assemble units of furniture which differentiates them from its competitors.
Porter’s Generic Strategies Model
Porter identifies three competitive positioning strategies on which the firm can follow (Kotler et al, 2005 pp 504 213).
IKEA supports a cost leadership strategy while adopting a differentiation strategy by adding the customers in the value chain. The customers are source of labour, knowledge and transportation. The customers are told what is required of them, for example customers have the responsibility of picking up the items from the warehouse. The suppliers are seen as customers gaining knowledge form IKEA specialists. This value added process makes sure that IKEA selects suppliers who provide high quality materials at low costs. IKEA effectively employs a cost leadership strategy while focusing on the needs of its target market segment.
The Competition
IKEA has faced competition from small local furniture retailers, large DIY chains and supermarkets. IKEA has been placed as the fourth on the most popular furniture list in the UK, behind MFI, Argos and DFS. Argos, has come broadened its appeal to a variety of customers through high quality furniture and enjoys a 5.1% market share compared to IKEA’s 4.6 %( Business Scotsman 2004). IKEA is also faced with indirect competition with home make-over shows and magazines which indicates unsatisfied customers. Their new Kitchens campaign is another attempt to diversify and satisfy customer needs.
Target Market
The typical IKEA customer is young, low to middle income family and generally for first time home buyers. They also focus on the mature and children’s market through some of its products. The company targets the customer who is looking for value and are willing to do a little bit of work themselves by transporting the items home and assembling the furniture.
PEST-G Analysis
PEST-G is used to analyse the business and economic conditions an organisation faces and how it effects businesses decision making. The table shows how each factor affects Ikea’s decisions and the way strategies are implemented. Each factor affects IKEA at varying levels
Swot Analysis
A summary of IKEA’s swot analysis is that IKEA has many strengths because it has a powerful brand name that stands for cheap prices and high quality. They provide a cash and carry service which means that customers can take their furniture with them as it flat packed and easy to assemble, this ensures customer satisfaction. The emphasis on an intensive training and recruiting process means a knowledgeable work force. IKEA’s inflexibility due to diversification can be seen as a weakness. The opportunities faced by IKEA are to expand in to different markets and different locations on a global level. The introduction in internet shopping could give them a competitive advantage. IKEA threat is Argos with its similar products provided at a cheaper price. They are target of competition on a global and local level. The introduction with more competition especially from another foreign could affect IKEA quite badly. (For a detailed swot analysis, refer to appendix A)
Marketing Strategy
IKEA ‘s marketing strategy is 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”(IKEA 2005).Customers are encouraged to share the IKEA experience which builds up IKEA’s brand name. To achieve the overall marketing strategy they must have smaller strategies which can be obtained through segmenting the market by offering different products to different people. For example IKEA hopes to expand in the future with smaller high street stores which would sell plants, candles and other home furnishings. This would mean that it would easier for people to reach an IKEA store who were unable to do so before.
IKEA offers different ranges of products for example the Kimme chair which is popular among young teenagers as it is inexpensive and is made out of brightly coloured plastic and therefore is aimed at the youth. Whereas the Pöang chair is popular among the more elderly as this is a expensive chair with a soft cushion and thus meets the needs of the older user. This is just one example but IKEA tries to market each product at a different target market therefore IKEA carries out multi segment targeting.
Geographical segmentation is when the market is divided in to different geographical units such as cities, countries and towns. IKEA has done this by having stores all over the world. The success of IKEA is due to paying attention to geographical differences in needs and wants. IKEA has expanded on a global level with its blue and yellow stores that are located on out of town sites. However after acquiring Habitat this gave IKEA access to trade with new customers segment who is less willing to travel In making this shift they have also realised the European trend towards town centre shopping centres.
Growth Strategy
IKEA’s growth strategy is to expand current stores in to larger stores or by opening 19 more new stores around the world, for example in Italy and USA(IKEA 2005). Each store will have similar qualities yet both countries are different so IKEA products will have to be targeted differently as each country has a different values, culture and norms which results in different needs of the customer. IKEA wants to maintain its low price strategy by finding efficient production methods, concise designs while exploiting economies if scale.
The Marketing Mix
Products -IKEA offers a range of products from bedrooms, kitchens, textiles, accenten, home organisation, lighting, green room, living, children’s and food services. The core to this is that they provide flat packed furniture.
Place -IKEA has expanded on a global and local level by opening more stores. The stores are found on the outskirts of towns due to the accessible roads near to the stores for customers and distribution.
Price- IKEA stands for low prices and high quality which is embedded through the whole IKEA process.
Promotion- is carried out through the catalogues as there main source of marketing. IKEA controversial TV advertisements also create brand awareness. The introduction of the IKEA store cards means special offers for card holders and thus creating a special relationship with its loyal customers.
Evaluation of the Company’s Strategies
The overall position of IKEA is profitable as sales have increased over the last ten years. This has been reflected in their strategies to expand through the introduction of new larger and high street stores. IKEA’s strategy to be the low cost producer has been attacked by its competitors. Argos is also producing similar products at cheaper prices and thus poaching there customers. IKEA is known for its long queues at the checkouts and therefore people may buy the similar product at a slightly higher price just to avoid the stress and hassle.IKEA has a lot of ranges from cheap to expensive and thus trying to meet every type of customer needs. This is a good strategy however its main strategy is be the low cost producer, it must focus on trying to produce cheaper products. By offering a large target market its is very difficult to keep up with the needs of different customers and therefore more money and time needs to be spent on marketing and therefore increasing costs rather than reducing costs. The differentiation approach sets IKEA apart from its competitors however Argos is taking up this self service approach by allowing customers to make self service payments.
Conclusion
IKEA is a profitable company and to maintain this success they must continue with the idea of being the low cost producer by adopting innovative methods so products that are designed and produced are done in a cost efficient manner while still being functional and stylish. IKEA is also creating stronger relationship with its loyal customers through their store card which gives the customers special benefits through promotion and special offers. This on the surface seems like a short-term strategy but it will be beneficial in the future as well because the introduction of Ilva a Danish furniture firm threatening to explore the UK market will try to gain IKEA target market but if you have loyal customers they will stay with you.
IKEA should diversify and open up smaller chains of high street shops for candles, textile products and other general household items. This would be popular as the larger stores are harder to access for some people so this would mean people wouldn’t have to travel as far unless they wanted larger furniture. IKEA would no longer be known as just the furniture retailer but has a whole package of products available for designing the whole house.
IKEA could Introduce new ranges and focus more on departments they have neglected, for example the bad publicity they received for there bed frames could be reversed if they put more effort in the bedroom section and ensured that safety is a key issue of IKEA’s policy.
IKEA has taken in to account the importance of being environmentally friendly and thus have starting recycling and during the manufacturing processes any left over materials are used to make another product. For example the lamplig chopping board is the result of waste wood produced from the production of their tables. If they continue with this idea and use the idea of being environmentally friendly as marketing tool could give them a competitive advantage.
Appendices
Appendix A
Strengths
- IKEA is a powerful brand name as it stands for high quality and cheap prices. It has a reputation for value for money, and the convenience of a large range of products under one roof.
- IKEA has grown a lot over the 10 year period which is reflected in their 14.8 billion turnover. This has meant that they have expanded globally by opening new stores across the globe.
- The company has a limited number of stores which is located in out of town sites and this means that when you come to shop at IKEA it is a whole day experience as it provides you with a restaurant to eat and child friendly facilities like the play area.
- Co workers are key to the success of IKEA and therefore a lot f time is invested in recruiting, training, developing and retaining people.
- IKEA is not just furniture store there other facilities like the restaurant, coffee bar and children play area.
- IKEA is environmentally responsible as they recycle products and follow environmental projects thus giving them an advantage over its competitors.
Weaknesses
- IKEA is a well known across the globe as the cheap producer. However its British competitors like Argos produce similar products at a cheaper price which could result in Argos poaching the customers off IKEA. For example in china the prices are considered expensive compared in Britain.
- IKEA sell products across many sectors such as food, stationary and furniture, it may not have the flexibility of some of its more focused competitors.
- The company is global, but has a presence in relatively few countries Worldwide.
Opportunities
- To take over, merge with, or form strategic alliances with other global retailers, focusing on specific markets
- The stores are currently only trade in a relatively small number of countries. Therefore there are great opportunities for future business in expanding consumer markets, such as India.
- New locations and store types offer IKEA opportunities to exploit market development. They can move from large out of town stores, to local and shopping centre based stores.
- Opportunities exist for IKEA to continue with its current strategy of opening new more stores and focusing on cheap prices, high quality and quick and efficient handling of goods
- They could introduce internet buying which would mean that you’re offering a service for those customers who prefer to shop online.
Threats
- Being number one means that you are the target of competition, locally and globally and this has happened as John Lewis has over taken IKEA.
- Being a global retailer means that you are exposed to political problems in the countries that you operate in and are susceptible to media coverage.
- Due more innovative and efficient technologies has meant that manufacturing costs are low for both IKEA and its competitive which could results in price wars on certain items.
References
Kotler P, Wong V, Saunders J and Armstrong G (2005) Principles of Marketing 4th edition, Harlow; Pearson Education Limited.
IKEA 2005 – home page (internet)
WWW.IKEA.COM
).
(Accessed on 13th March 2006 at 12:20)
Business Scotsman-home page (internet)
http://business.scotsman.com-
)
(Accessed on 13th March at 12.20)
Marcousè I, Gillespie A, Martin B, Surridge M Wall N (1999) Business Studies London Hodder and Stoughton Educational.
