Ikea for global

Mission statementMission statement Ikea's mission is to offer a wide range of home Ikea's mission is to offer a wide range of home

furnishing items of good design and function, excellent furnishing items of good design and function, excellent quality and durability, at prices so low that the quality and durability, at prices so low that the majority of people can afford to buy them (IKEA 1994). majority of people can afford to buy them (IKEA 1994). The company targets the customer who is looking for The company targets the customer who is looking for value and is willing to do a little bit of work serving value and is willing to do a little bit of work serving themselves, transporting the items home and themselves, transporting the items home and assembling the furniture for a better price. The typical assembling the furniture for a better price. The typical Ikea customer is young low to middle income family. Ikea customer is young low to middle income family.

EXECUTIVEEXECUTIVE SUMMARYSUMMARY

Swedish Company IKEA was the worldSwedish Company IKEA was the world’’s s largest furniture retailer since the early largest furniture retailer since the early 1990s. It sold inexpensive furniture of 1990s. It sold inexpensive furniture of Scandinavian design. The company Scandinavian design. The company operated in 55 countries with a workforce of operated in 55 countries with a workforce of 76,000. IKEA offered nearly 12,000 items to 76,000. IKEA offered nearly 12,000 items to the home furnishings market worldwide. It the home furnishings market worldwide. It sold a wide range of products including sold a wide range of products including furniture, accessories, bathrooms and furniture, accessories, bathrooms and kitchens at 186 retail stores in 30 countries kitchens at 186 retail stores in 30 countries across Europe, North America, Southeast across Europe, North America, Southeast Asia, Middle East and Austral. IKEA is well Asia, Middle East and Austral. IKEA is well known for its unique concept, low price, known for its unique concept, low price, wide range of product and flat packing. wide range of product and flat packing.

Background Background

1942 IKEA established1942 IKEA established  

1947 started the furniture business1947 started the furniture business  

1958 1st shop opened in Sweden.1958 1st shop opened in Sweden.  

As at 2007,it has 260 stores in 35 As at 2007,it has 260 stores in 35 countriescountries  

IKEA own their coffee shops, IKEA own their coffee shops, restaurants in the retail shopsrestaurants in the retail shops

ProductProduct Price:Price:

Low priceLow price  

low cost logisticslow cost logistics  

large quantity purchasinglarge quantity purchasing  

flat packed method reduce flat packed method reduce transportation costtransportation cost  

Product:Product:  

Offer > 12,000 itemsOffer > 12,000 items  

Design: light and modern, Design: light and modern, many selectionsmany selections  

Multi functionalMulti functional

SWOT ANALYSISSWOT ANALYSIS StrengthsStrengths IKEA have a strong internationally known brand attracting key demographic IKEA have a strong internationally known brand attracting key demographic

customer groups. customer groups. The IKEA business model is unique in its construction and execution with little The IKEA business model is unique in its construction and execution with little

direct competition on a like for like basis. direct competition on a like for like basis. Success has been driven from the price architecture offering value to the customer Success has been driven from the price architecture offering value to the customer

in innovative but functional products. in innovative but functional products. Despite the large shed operations IKEA operate there is a degree of specialist Despite the large shed operations IKEA operate there is a degree of specialist

knowledge within key product areas where purchases are more considered and knowledge within key product areas where purchases are more considered and require assistance such as kitchen installations. require assistance such as kitchen installations.

WeaknessWeakness While an international brand there is a level of reliance on European markets with While an international brand there is a level of reliance on European markets with

90% of the stores based in Europe and the balance across America, Middle East and 90% of the stores based in Europe and the balance across America, Middle East and Asia. Asia.

Although the model promotes low prices it has been identified there is an Although the model promotes low prices it has been identified there is an associated low level of customer service which couples this suggesting there is a associated low level of customer service which couples this suggesting there is a need to work on service to ensure a complete shopping experience and ensure need to work on service to ensure a complete shopping experience and ensure repeat business within the existing customer base. repeat business within the existing customer base.

As a reaction to marketplace movement the development of Ecommerce has been As a reaction to marketplace movement the development of Ecommerce has been necessary to compete in a modern technological world however there is also a necessary to compete in a modern technological world however there is also a consideration this movement into multi channel retailing moves away from the consideration this movement into multi channel retailing moves away from the fundamental vision of the customer being able to see and touch the product. fundamental vision of the customer being able to see and touch the product.

SWOT ANALYSISSWOT ANALYSIS OpportunitiesOpportunities IKEA are moving from International to global status through the IKEA are moving from International to global status through the

development of Asia and Eastern European models. development of Asia and Eastern European models. Traditional product for IKEA has been within value, low price high Traditional product for IKEA has been within value, low price high

volume product however the movement into mid and higher price volume product however the movement into mid and higher price points will see an opportunity to move the demographic base and points will see an opportunity to move the demographic base and increase the average basket value with less reliance on a limited increase the average basket value with less reliance on a limited demographic group. demographic group.

Although there are negative associations within the development of Although there are negative associations within the development of the IKEA Ecommerce site there is an associated opportunity to achieve the IKEA Ecommerce site there is an associated opportunity to achieve growth and increase levels of customer service as the additional growth and increase levels of customer service as the additional transactional capability will reduce pressure from stores to a certain transactional capability will reduce pressure from stores to a certain degree. degree.

ThreatsThreats Within growing competitive retail markets mainstream retailers are Within growing competitive retail markets mainstream retailers are

beginning to mirror the model of low cost value flat packed furniture beginning to mirror the model of low cost value flat packed furniture which will impact on the buoyancy of IKEA. which will impact on the buoyancy of IKEA.

With economic concerns over rising living costs and depleting With economic concerns over rising living costs and depleting disposable income there is an overall threat to the performance of the disposable income there is an overall threat to the performance of the business in UK and American markets specifically. business in UK and American markets specifically.

KEY FACTORS TO GO GLOBAL KEY FACTORS TO GO GLOBAL

lKEA already has successful operations in the U.S., Canada, lKEA already has successful operations in the U.S., Canada, Europe, and Asia. The South Korean economy has a growth Europe, and Asia. The South Korean economy has a growth rate that can result in a profitable market to penetrate. rate that can result in a profitable market to penetrate.

The European Union, the United States and China are the The European Union, the United States and China are the main sources of FDI. EU countries invested a combined US$ main sources of FDI. EU countries invested a combined US$ 3.1 billion in South Korea in 2003, according to the MOCIE3.1 billion in South Korea in 2003, according to the MOCIE

South Korea offers a more open and capitalistic South Korea offers a more open and capitalistic philosophy, offers significant benefits to a company such philosophy, offers significant benefits to a company such as IKEA. With a population of almost 49 million, IKEA would as IKEA. With a population of almost 49 million, IKEA would have easy access to shoppers. The emerging low, middle have easy access to shoppers. The emerging low, middle class and trend toward privatization offer a target market class and trend toward privatization offer a target market that would definitely be interested in IKEA furniture.that would definitely be interested in IKEA furniture.

To enter this market, IKEA has several options available To enter this market, IKEA has several options available and needs “to evaluate the pros and cons of” foreign and needs “to evaluate the pros and cons of” foreign direct investment through, “joint ventures, franchising, direct investment through, “joint ventures, franchising, subsidiaries, or a mix of these as a mode of future subsidiaries, or a mix of these as a mode of future involvement. involvement.

Marketing Mix -Marketing Mix - PricePrice IKEA’s strategy is based on cost IKEA’s strategy is based on cost

leadership. Across markets where leadership. Across markets where it currently has a presence, it currently has a presence, products are sold at low prices. products are sold at low prices. Prices are 30 to 50% lower than Prices are 30 to 50% lower than competing products. Price competing products. Price variations are only a result of variations are only a result of fluctuations in exchange rates. fluctuations in exchange rates. This penetration pricing enables This penetration pricing enables IKEA to gain significant market IKEA to gain significant market share. Low prices are a result of share. Low prices are a result of large-quantity purchasing, low-large-quantity purchasing, low-cost logistics. cost logistics.

IKEA also benefits from economies IKEA also benefits from economies of scale and healthy supplier-firm of scale and healthy supplier-firm relationships. IKEA enters into relationships. IKEA enters into long-term contracts, provides long-term contracts, provides leased equipment and technical leased equipment and technical support in exchange for exclusive, support in exchange for exclusive, low-cost manufacturing from low-cost manufacturing from suppliers. For new markets, IKEA suppliers. For new markets, IKEA should retain its price-image to should retain its price-image to maintain the brand’s positioning.maintain the brand’s positioning.

Marketing Mix - productMarketing Mix - product

IKEA’s value chain is unique in that IKEA’s value chain is unique in that customers are also suppliers and customers are also suppliers and suppliers are also customers. The suppliers are also customers. The transactions between the supplier and transactions between the supplier and IKEA and on to the customer have a IKEA and on to the customer have a value adding step in each stage. value adding step in each stage.

Product differentiation exists in the Product differentiation exists in the value-added dimension. IKEA’s value-added dimension. IKEA’s consumers are treated as ‘prosumers’ consumers are treated as ‘prosumers’ with most of its products requiring with most of its products requiring assembly after purchase. But assembly after purchase. But although assistance in this aspect is although assistance in this aspect is limited, IKEA offers options for limited, IKEA offers options for choosing, transporting and choosing, transporting and assembling furniture. assembling furniture. While this is well accepted in areas While this is well accepted in areas where IKEA now operates, it may be a where IKEA now operates, it may be a point of consideration when entering point of consideration when entering new markets. Should IKEA encounter a new markets. Should IKEA encounter a market where DIY is not favored, IKEA market where DIY is not favored, IKEA may include the cost of the service to may include the cost of the service to the product’s price.the product’s price.

Marketing Mix – position and promotionMarketing Mix – position and promotion

Position and Place Position and Place

IKEA stores are located in suburban IKEA stores are located in suburban areas. This is a factor in the areas. This is a factor in the achievement of IKEA’s low pricing. achievement of IKEA’s low pricing. While it may appear as a While it may appear as a disadvantage, this fits IKEA’s target disadvantage, this fits IKEA’s target market of customers willing to market of customers willing to transport their own purchases and transport their own purchases and requiring less assistance in assembly. requiring less assistance in assembly.

PromotionPromotion

Catalog , TV advertisement, Blog, Catalog , TV advertisement, Blog, and Web site. Advertisement is and Web site. Advertisement is needed to make potential customers needed to make potential customers aware of store location. It was aware of store location. It was thought that lower prices and thought that lower prices and selection would do the rest-positive selection would do the rest-positive word-of-mouth had proven the best word-of-mouth had proven the best advertising in the most other advertising in the most other martket. martket.

CitationCitation

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