Marketing Factors For The Ikea Company Marketing Essay

4011 words (16 pages) Essay

1st Jan 1970 Marketing Reference this

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The way that IKEA became the first brand of wood furniture selling is a miraculous story. It is not Walmart, who is the first great aristocratic family in retail trade but unsuccessful in Brazil, German and Japanese market. Neither is Carrefour, another European titan, who is unable to achieve a complete success in American Marker. Overall, at this moment, with 309 stores located in 38 countries of Europe, Asia, Australia and Latin- America, IKEA is really the most remarkable titan in retail industry.

Have you ever imagine these stories: in Jeddan, Saudi Arabia, thousands of people concentrated in front of IKEA store, only because the promise of gifts for the first 50 people. And another new opening IKEA shop in London, 2005, around 6000 police were pulled to keep public order. Its atmosphere is like a festival… IKEA’s citizens are in a whirl of valuable offers, from stunning design, friendly environment, unexpected and efficient price to unique promotions… And moreover, IKEA has brought “lifestyle” to them. IKEA is imagined like a Holy Land where owns everything for youthfulness and freshness.

IKEA is a Swedish home furnishing retailer that was found in 1943 by Ingvar Kamprad. The acronym IKEA is created by combination of the initials of its founder’s name Ingvar Kamprad, his family farm Elmtaryd and his home town Agunnaryd (in Smaland, South Sweden). Before establishing IKEA, Kamprad was selling matches, Christmas decoration, ballpoints and pencils individually for making profit. His father gave him a cash reward for good studying result when he was 17 year old. And IKEA was built from that money at very early moment of his life in 1943. Until 1958, the first IKEA store was established in his country and has developing with its mission: “ONE FOR ALL, ALL FOR ONE! IKEA ALL THE WAY”

Nowadays, IKEA is known as the first home furniture retailer. IKEA is owned by Kamprad family’s foundation, called Dutch- registered Stiching INGKA Foundation. This foundation is non- profit organization of charity and is registered in Netherlands. This foundation also owns INGKA Holding B.V, the parent company for all IKEA stores.

As I mentioned above, IKEA has hundreds of stores which mostly are located in Europe, Latin- America, Asia and Australia with 123,000 employees working in various positions. Previous years, IKEA also extended new stores in new market, such as Middle East. At first, IKEA started selling pens, watches, table runners, stockings, picture frames and so on… The first furniture was sold in 1948 and IKEA started manufacturing its furniture in 1955.

IKEA stores are maintaining in the same format within a big blue building with some small yellow windows: there is one way to go through the building which is created to help customers have a complete view of the entire store. Some of the IKEA stores, for example in the Czech Republic have restaurants where customers are provided food at low price. Moreover, the stores also have free enter playing- fields for children which are known under name Smaland (the home town where Kamprad grown with his childhood). If you had chance to visit IKEA stores, you can easily to be introduced “IKEA FAMILY” card. With this card, the customers have some special discount on the selected products and also on the food from restaurants. This card is also known as loyalty card for IKEA customers.

Business Analysis- Strategy Planning Process

To get deeply understanding to have a prospect about IKEA company and its activities in the Czech Republic, I used Strategy Planning Process to analyze the decisions taken during the company’s strategy development and implementation processes. This Planning process is an associated 4stages: Diagnosis, Formulation, Implement and Evaluation. By running this planning process during the IKEA analysis, we will have a overall look of IKEA performance from external environment to internal environment.

Firstly, I would like to take a view at the general- external environmental factors by using PESTLE Analysis. This PESTLE touches upon the environmental components and combination of IKEA internal force to face to environmental fluctuation which might affect the organization from outside. The PESTLE elements includes: Political, Economical, Social, Technological, Legal and Environmental. We will analyze these elements individually in the list below.

Political factors

These factors have big influence to all business respects which run in a country. The political factors may threat viable ability and development of any businesses. IKEA is running its business in the Czech Republic, so it must follows the Czech political policy.

Czech Republic is a Eastern European country who has good diplomatic relations with its neighbor countries and international ones. Czech Republic joined in European Union on May, 2004 and joined in Schengen on December, 2007. This buffer will help Czech plays in the single market which is used to ensure the free movement of people, goods, services and capital; based on a standardized system of laws and apply in all member states. For IKEA, it will get tax incentive of import and export from its suppliers or to its distributors outside the Czech Republic. The Czech Republic is estimated high stabilizing; this creates good conditions for developing business activities in Czech territory. The Dutch-registered Stitching INGKA Foundation who owns the IKEA’s parent company, is a non-profit organization, so it affects IKEA getting some corporate- tax avoidance and anti-takeover protection for itself.

Economical factors

The businesses need to pay attention to economical factors in short- term/ long- term and the interference from government. Last year, 2009, from Czech Labor law, corporate income tax had standard rate at 20%. It would be result of the financial crisis from 2008, which made fluctuation of market. In 2010, the standard rate will slightly go down at 19%. This reduction will help IKEA balance the most reasonable price of products for the customers.

Although the world is facing to crisis, IKEA is still got high revenue in general, increased 2-3%. From crisis consequence, the consumer tendency is changed to use low price stocks. This tendency is very suitable with IKEA business precept. Now we take a look at the Czech furniture industry last year: the furniture industry accounted for around 3% of revenue from the sale of own products and services and for 5.3% of the labor force. Revenue from the sale of owns products and services in the furniture industry had been showing a steady rise in the past few years, as has productivity derived from added value. Czech furniture products are in long- term demand with no sales problems which is tested by their success at trade fairs and exhibitions. it can be emphasized the future development of production and trade in the Czech manufactures and managers.

In 2009, the Czech GDP was 215 billion, this shows slightly increasing. It means that Czech market has suitable and safe conditions for business who have already existed and very attractive for investors.

Social factors

Each country, each territory has different and distinctive cultural- social value. And these factors are characteristics of consumers in these areas. The cultural values are the values of creating the community, they may look after the community to be existed and developed. Today, we can easily to realize cultural interference from different cultures comes to others countries. The interference will change consumer sentiment, lifestyle and create potential development in business.

Even the Czech Republic we can immediately recognize the interference of others cultures, especially recently as Asian Culture. Absorbedness Asian culture also can be a chance in design for IKEA which can combine both culture from Scandinavian styles and Asian styles, such as: the science of winds and waters factors, colors, materials and so on…

Czech population is a young population with 10 ethnic groups. Around 40% of young population is people who have good earnings, good life conditions, and degree of understanding and work in stable positions in community. However, they prefer single lifestyle and do not want to have responsibility to family and children. According to these factors, IKEA is also able to serve these singles by producing stunning, fresh and diversified products in the reasonable price.

As I considered, IKEA can design their products based on the combination of different cultures to serve the interferential tendency. It also serves the different ethnic groups in the Czech Republic such as: Chinese, Vietnamese, Polish, Russian and Slovakia.

The Czech population is divided in some big areas as: Prague, Moravian areas, Karlovy Vary… So the 3 big IKEA stores is located in Prague and Brno are great place for catching customers.

Technological factors

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.

IKEA believes that a strong in-stock position in 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.

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.

Legal factors

The Czech Republic law system is based on Austro-Hungarian codes which modified to bring it in line with European Union obligations. Businesses in general and IKEA in particular in the Czech Republic will conform to its legal system and automatically according to the European Union law system in specific aspects, such as investment law, enterprise law, anti- dumping law, anti- monopoly law and so on…

Environmental factors

These environmental factors are considered the weather, the effects from industrial activities to environment and climate change. Any industries nowadays are trying to move more friendly environmental products and production process. For IKEA, it uses only recyclable materials for their products and wood only from responsible forest and suppliers where they can replant for following using.

Secondly, we should take a step to assess the 4 important factors which effect directly to the company. There are 4 areas of Suppliers chain- Distributor/ Retailer Chain- Customers Chain and Competition. By this assessment, we will figure out what are Strengths and Weaknesses of IKEA.

Suppliers Chain: IKEA does not have its own manufacturing facilities. Instead, it is using subcontracted manufacturers all over the world for supplies. All research and development activities are, however, centralized in Sweden. IKEA has over 1,800 suppliers located in over 50 different nations.

Distributors Chain: IKEA has a total of 28 distributional centers and 11 customer distributional centers. IKEA tries to minimize extent possible by using a flat container, preferring transportation by rail and by sea. They choose methods that save fuel, our service is cost effective and environmentally friendly.

Customers Chain: as we discussed, the IKEA customers are single, small families and different nationalities in the Czech Republic. According to them and Czech culture, IKEA supports specific services for their customers: sewing service, IKEA children, Gift card, 90 nights for testing your mattress, IKEA without barrier, free parking, IKEA restaurant & cafe and Swedish specialties.

Competition: IKEA now is facing to appropriate 20 furniture enterprises which also are managed by foreign companies. There are also around 7large domestic stores.

Next step, we will discuss about serious questions of competitive natural environment by using Porter’s Five Forces Model.

Threat of new entrants

The Czech market is free beside the demand of the furniture industry is still increasing, so it is easy to appear new furniture entrants from small size of below 10 employees to bigger sizes. Moreover, to copy- cat IKEA design in production is also not complicated.

Threat of substitute products and services

The competitive pressure of substitute products and services is athe ability to meet customers’ demand which can compare to others products in the industry. In addition, others factors as price, quality, culture, politics, and technology will impact the threat of substitute products.

Unpredictability of substitute products and service: even within the industry, the development of technology may create substitutes for their respective branches. Bed- sofa or bed combines with studying table and wardrobefor children is some examples from IKEA substitutes instead for individual products. This also satisfies the tendency for small houses.

Bargaining power of customers

Customers are competitive pressure who can affect directly to the entire business activities. The customers are divided into 2 groups: individual customers and distributors. Both of 2 groups takes pressure to business about price, product quality, packing services and they are operators the competitive activities through buying decisions.

IKEA’s success is based on the relatively simple idea of keeping the cost between manufacturers and customers down. IKEA also always listens to its customers’ desire to design as much as possible.

Bargaining power of suppliers

Quantity and economic scale: with huge number of 1800 suppliers from 50 countries, we can recognize IKEA has power in negotiation to its suppliers and get pressure to its competitors in the furniture industry.

Replaceable inputs from suppliers: IKEA builds long- term relationship with its suppliers, so it gets diversified choices from its suppliers in negotiable switching cost.

IKEA is the influential distributor to the world; IKEA has enough power to negotiate with others companies on price, product quality and marketing policies in the transfer of goods into their system.

Rivalry amongst current competitors

The businesses within furniture industry will directly compete with IKEA and it will build pressure in the industry. Speed of growth of IKEA is good and it is known as biggest furniture store, IKEA is compete with around 20 others furniture brands in the Czech Republic. Although the competitors are smaller than IKEA, IKEA should always pay attention to them (the Czech market is not so big).

In this section, I use Value Chain Analysis to understand how IKEA can enhance its competitive positioning. The value chain approach identifies two major activities- primary and secondary. Primary actives include production, marketing, logistics and after-sale functions. Secondary activities, on the other hand, are identified as support processes to primary activities. These include Firm infrastructure, Human Resource Management, Technology development and Procurement. The ultimate purpose of the firm is to add as much customer “value” in each of the primary activities. IKEA has modified the value chain approach by integrating the customer in the process and introducing a two-way value system between customers, suppliers, and IKEA’s headquarters.

Inbound logistics

In order to furnish the customer with good quality products at a low cost, the firm must be able to find suppliers that can deliver high quality items at low cost per unit. The headquarters provides carefully selected suppliers with technical assistance, leased equipment and the necessary skills needed to produce high quality items.

This long-term supplier relationship does not only produce superior products, but also add internal value to the suppliers. In addition, this value-chain modification differentiates IKEA from its competition.

Operations

IKEA stores are mega- factories with automatic system to create complete view for customers from choosing styles to choosing goods and packaging them. IKEA does not use many humans in its stores, but in showrooms and places where customers pick up the products also have staffs who are ready to advice and help the customers in need.

Kamprad advocates to build a non- decentralized administration within the organization- all of IKEA’s staffs are their co- workers. It would be helpful to gain higher working performance and be more understanding between each others. IKEA regularly arranges Anti- bureaucracy Weeks, when the managers will join and work in their stores side by side their workers. In addition, bureaucracy is fought at all levels in the organization. Kamprad believes that “simplicity and common sense should characterize planning and strategic direction”

Outbound logistics

IKEA logistic uses a lot of Just- In- Time concepts to develop its own global distribution network.

IKEA also keeps costs down by packing items compactly in flat standardized emblazes and stacking as much as possible to reduce storage space during and after distribution in the logistics process. If the customers do not want to carry the goods, IKEA also charges for help with transport through its partner companies.

Marketing and sales

IKEA is famous for its affordable furniture “Do it yourself” which consumers are required to assemble for themselves. Costs are kept under control staring at the design level of the added value.

The IKEA catalogue, containing about 12,000 products, is printed 160 million copies worldwide and distributed free of charge. To facilitate shopping, IKEA does not only provide catalogues, but also supports tape measures, shopping lists and pencils for writing notes and measurements.

Shopping can be exhausting for the customers if they visit IKEA in whole day. With traditional meals and Swedish specialties, the customers also relax from shopping for a while and taste meals and coffee. This help IKEA gains customers’ satisfaction when they come to IKEA. Moreover, this is good point for serve also IKEA staffs when they are working. The staffs do not need to go to other place for breakfasts and lunches to get delicious food with most reasonable prices.

Within IKEA stores, there are optional life styles design such as kitchens, living rooms, place for children… these give customers more choices in decision. This is like a self- marketing method by mobilizing customer-selves in their own activities. Customer will be more satisfied with their selves.

After sales services

Effective marketing through catalogues usually attracts the customers first, keeping customers coming back is good services. We was mentioning about the range of IKEA services when discussed Customers chain. Now I will bright out “IKEA quality”- the after sales activities.

IKEA Czech Republic provides warranty on most of good in 3years. And all of good is guaranteed by law. The customers also can extend warranty periods after 3years for selected goods. For example: Cuisine facts (25 years for the kitchen items), Favorit (10 years/ 25 years for pots, pans and non stick coating), Ektorp (10years for frame, filling, mattresses… and domestic use) and so on….

In this global sourcing strategy, the customer is a supplier of time, labor, information, knowledge and transportation. On the other hand, the suppliers are customers, receiving technical assistance from IKEA’s corporate technical headquarters through various business services. The company wants customers to understand that their role is not to consume value, but rather to create it.

After analyzing all information of external and internal environments above, I would like to summarize in full of SWOT Analysis:

STRENGTHS:

IKEA is a remarkable company worldwide with long- standing history and high prestigiousness. It creates its own reputation by the time and the customers will completely feel secure when choosing IKEA.

IKEA products is performed with efficient costs and better than competitors’ ones. IKEA goods also are offered for variety of people with care in designs and flat packages.

Long warranty period of time to ensure customers’ satisfaction in long time.

Efficiency of customer services to cover many respects in one visit time.

Customers are clearly informed in the catalogues and the tools within stores of what the firm’s business systems provide, and what they are expected to add to the final process.

IKEA stores contain 12000 products within for most demands of household goods. This will give customer different choices and completed household sets.

WEAKNESSES:

Self- services will be able to affect the customers in directions or confused choices. It also takes time for finding where the products are.

The catalogue is a substantial investment; IKEA need to ensure the catalogues is targeted to reach right people who are potential customers. IKEA requires to maximize the return on this investment while expanding their appeal and organizing the domain market.

IKEA stores always located outside of town, it may only catch the customers who have vehicles.

Less of workers, Self- services and self- transportation may cause broken products and take more responsible from customers.

The large store is hard factor in changing and adapting to new situations and different problems. For example, the design sample in Europe may not suit to others locations like Asia, America… because of customers’ demand, culture or atmosphere.

Bureaucracy in the organization and management cannot be ignored.

OPPORTUNITIES:

The increasing population and increasing market demand, IKEA will get a chance to extend in providing more products or extend new stores in new potential locations.

Working with other companies or organizations will create more business opportunities, reduce producing costs and increase the competitive advantages.

After the Schengen laws are completed in near future, IKEA can get tax incentives from import and export policies.

Technology development will pull the customers to IKEA closer and faster.

THEATS:

Competitive pressure from the rests of competitors.

New brand can easily to join in the furniture industry with different and unique goods to catch the customers.

Natural calamity can affects the stores or transportation of goods from suppliers or to distributors.

Laws of environmental protections will affect the IKEA business activities.

Conclusion- Recommendations

From a completed review of IKEA activities within its industry in both Czech market and international market, I would like to conclude in different aspects of organization strategies.

We recognize that, the concept of marketing high quality products at low cost is a focused generic strategy. This strategy only focuses on serving middle- class, so by innovation, IKEA should create new ranges of products to meet the higher class or lower class from the third world countries.

To ignore the bureaucracy and keep good products quality, centralized control and products standardization are two necessary components of the IKEA long- term strategy. In addition, IKEA must facilitate its international expansion through owned subsidiaries and franchises. New stores in new locations will pressure and force IKEA to change its global strategy to be more sensitive to local demands.

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