In the first part of this essay, the reason why this essay uses marketing mix to analyse IKEA’s success will be explained. It will then go on to illustrate if the marketing mix theory suitable to IKEA strategy and how marketing mix is related to IKEA success. Finally conclusion will be drawn.
Why use marketing mix to analyse IKEA success
In this part, the core value of IKEA will be introduced. Then the reason why this essay uses marketing mix to analyse the success of IKEA will be discussed.
The concept of an organisation guides what the organisation does, therefore understanding IKEA concept is essential to study its marketing mix. According to the IKEA website, IKEA concept is defined as follows:
“â€¦based on 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 website, 2010)
Borden (1964) suggests that marketing mix could function as a checklist to consider marketing questions or deal with marketing problems. In IKEA’s case, Tarnovskaya (2007) suggests that the unique IKEA product range and the low prices should be considered as essentials to realise IKEA mission and its social responsibilities. However, Capell et al. (2005) state that IKEA philosophy is about modern design of products, low prices, unusual but innovative promotions and an enthusiasm that few firms can produce. Therefore this essay will focus on the following aspects of IKEA marketing mix strategy: price, quality of products, distribution channels and promotion methods.
Marketing Mix of IKEA
In the following part, marketing mix of IKEA will be discussed. As it is mentioned above, the core value of IKEA can be summarised as “low price but good quality furniture for as many people as possible”. Therefore, the price will be examined in the first place, followed by other elements of marketing mix.
The first task of accomplishing IKEA mission is to make products affordable. In traditional mind-set of furniture business, prices of furniture should be high and prices would be reduced as the furniture quality becoming lower. In contrast, as a typical market-driving company (Kumar, 2006), IKEA provides low prices and good quality products by standardising its products range, seeking low-cost manufactures, and selling furniture in high volume globally. Last but not least, the most innovative strategy is to cut the services that traditional furniture stores offer.
As the largest home furniture retail chain in the world, the sales volume in 2009 is 21.5 billion of euros and the number of active articles is 10,000 in 267 stores around the world. (IKEA website, 2010) Besides, the core range of products in different countries is the same. Since IKEA sells almost identical products in such a tremendous volume (Czinkota and Ronkainen, 2010), significant economies of scale are allowed therefore costs of each product become lower. It is noted that IKEA chooses its suppliers strictly to insure that cost of production and raw material cost are as low as possible. According to Czinkota and Ronkainen(2010), IKEA secure its low cost strategy by contract manufactures. These manufactures are selected by three criteria: low cost in labour and close to raw material yet convenient in logistics. To sum up, IKEA are able to sell low price to customers yet make a considerable profit by producing low cost products.
Another way to lower price is cutting what the services of traditional furniture companies provide, which can be done by customers themselves. In literature, Deran (1987) demonstrates three paths to sell at low prices and maintain satisfactory profits. One of them is “to offer your product stripped of some or all the services that normally accompany it and that your particular customers are willing to provide for themselves” (Deran, 1987, p. 134). IKEA cuts services including shopping guide personnel, furniture assembly and transportation. Although IKEA encourage self-services, it is still providing these services. Jobber (2007) has given an example of IKEA kitchen installation service. IKEA allows its customer to purchase the service according to the level of service needed. Nonetheless, these services are seen as “extras”, which are the “ordinary” services in other furniture retailer. Further description of how IKEA implement these three customer self-services will be presented in product and promotion part respectively. This example clearly proves that one of the low price paths in theory helps IKEA to achieve low price and then realise IKEA concept to some extent.
As to pricing, Kotler and Keller (2009) conclude that IKEA is one of the companies that are best in performing value pricing. They define value pricing strategy as to “â€¦win loyal customers by charging a fairly low price for a high-quality offering” and to “become a low-cost producer without sacrificing quality” (Kotler and Keller, 2009, p. 432), which almost matches IKEA’s core value.
However, IKEA’s price is not unbeatable. When IKEA first entered China, the products were considered as high-priced, and then IKEA lowered the prices of major products in different categories (Tarnovskaya, 2007).
Not only IKEA’s low cost of productions and its pricing strategy help IKEA to be successful, the low price strategy also serves to diminish the cultural impact on furniture. Martenson (1987) points out that cultural difference is a crucial factor of sales only to a certain degree. The importance of cultural differences reduces as prices between alternatives become large. It is traditionally considered that cultural differences have a large impact on furniture industry. However, in IKEA’s case, standardised low-price products are proved to be popular between different cultures. In other words, IKEA’s success best proves Martenson’s (1987) view.
Normann and Ramírez (1993) describe IKEA products as “â€¦simple, high-quality, Scandinavian design; global sourcing of components; knock-down furniture” (Normann and Ramírez, 1993, p. 66). Actually, it is the IKEA concept that implies such a product strategy, as IKEA website (2010) demonstrates that the IKEA concept guides how the products are designed, made, delivered and sold and installed. In other words, the features of product strategy should be closely related to low price strategy.
In literature, Kotler and Armstrong (2008) categorise furniture as shopping product. They define shopping products as “consumer good that the customer, in the process of selection and purchase, characteristically compares on such bases as suitability, quality, price, and style.” (Kotler and Armstrong, 2008) Undeniably, IKEA is a furniture retailer and the furniture that IKEA sell is shopping products in definition.
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