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IKEA`s Strategic Management
G1018935 G0925035 G 1010877 G0928430 G1010892
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Jobeer Dahman Mohamed THIERNO Amr Adel Sally Sameer Yasmin Dahman
Table of content
Acknowledgement Abstract 1. Introduction
1.1. Furniture industry trends
2. 2. Ikea
2.1. 2.2. 2.3. 2.4. 2.5. 2.6. 2.7. Ikea background Current mission Goals Core competence Environment and corporate culture: Organization culture Ikea corporate social responsibilities
3. 3. Organizational structure and management
3.1. Ikea business strategy 3.1.1. Operations strategies 3.1.2. Ikea communication strategy 3.1.3. Ikea –organizing strategies 3.2. Managing supply chain
4. 4. Marketing strategy 5. 5. Ikea group strong financial growth for fiscal year 2010
5.1. 5.2. 5.3. 5.4. Liquidity ratios Assets management ratios Debt management ratios Profitability ratios
6. 6. Analysis
6.1. Ikea-internal factor analysis 6.1.1. Strengths 6.1.2. Weaknesses 6.2. Ikea-internal factor analysis summery (IFAS) 6.3. Ikea - external factor analysis 6.3.1. Opportunities 6.3.2. Threats 6.4. External factor analysis summery (EFAS) 6.5. Strategic factors analysis summery (SFAS) 6.6. Tows- metrics analysis 6.7. Porter‘s six forces model analysis for Ikea
7. 7. Recommendations 8. 8. Conclusion 9. 9. References
3 4 5 5 6 6 8 8 9 9 9 10 11 12 12 14 14 15 16 17 18 18 18 18 21 21 21 21 22 23 23 24 26 27 28 30 32 33 34
We would like to extend our sincerest appreciation to our helpful Professor Dr. Siong-Choy CHONG, for giving us the opportunity to analyze IKEA deeply according to the basic knowledge which we got during the class. The supervision and support that he gave truly help the progression and smoothness of our analysis is much indeed appreciated. We would also like to thank the various individuals who have contributed in any way possible; we would also like to thank the various individuals who have contributed in any way possible, thereby allowing us to create as accurate a representation as possible within our given constraints.
IKEA is a well-known global brand with hundreds of stores across the world. Its strategy is providing good quality furniture with low cost to many people. IKEA has strong relationship with suppliers which help them to be cost leader in the furniture industry as well as a strong social and environmental policy. Their image of quality and
affordability is an asset and their unique decision to go to flat packs provided portability and greater storage capacity. IKEA has weaknesses greatest of which is a resistance to change. They also lack transparency between divisions, have high staff turnover, and have difficulty forecasting demand. They have opportunities in the trends toward streamlined customs, increases in e-commerce, popularity of franchising and the current popularity of minimalist styles. The threats come from strong competition from superstores, government regulations and, because of their snail like pace of change, advances in technology and dramatic style changes pose large threats.
1.1. FURNITURE INDUSTRY TRENDS
As the world economy is developing fast in the past 10 years, the furniture markets have opened up more and the world furniture industry has been growing fast. Over 70% of the global market has been taken up by the traditional furniture making countries. This is possible because of their long established production capacity, advancement in science and technology, solid funds and rich management experiences. Meanwhile, developing countries and regions like China, Southeast Asia, Poland and Mexico, with China taking the lead, have built upon their respective competitive advantages and gradually have covered almost 30% of the world market. The furniture industry in such countries is developing strongly and showing great potentials. The European Union furniture industry accounts for about half of the world's furniture production. The production value of this industry in this region is around € 82 billion. Considered to be a labor-intensive industry it provides employment for around 1 million people. Among the European countries, Germany takes the lead as the largest furniture producing country, accounting for about 27% of total EU production. This is followed by Italy (21.6%), France (13.5%) and the UK (10.4%).The Canadian Furniture Industry is the 5th largest exporter of furniture in the world. The major furniture producing countries in South East Asia are Philippines, Indonesia, Malaysia, Singapore, Thailand, Korea, Taiwan and India. In the context of global furniture trade, Asia shows healthy signs of growth with respect to its other international competitors. Asian furniture has always been popular in developed countries like USA, Europe and Australia. Over 20 years of fast growth, China has been able to bring unlimited business opportunities and vitality to the global furniture industry. Now, China has today emerged as a furniture production center, a circulation center as well as an exhibition center in the world. The rise of China's furniture industry has brought about a new round of restructuring of the global furniture industry and trade pattern. According to a recent estimate, the Indian furniture industry is estimated at around 350 billion. Eighty-five per cent of this falls into the unorganized sector. According to a study by the World Bank, the organized furniture industry is expected to grow by 20 per cent a year and India, Brazil and Russia will witness a boom.
2.1. IKEA BACKGROUND
IKEA was founded by Ingvar Kamprad (Kamprad) in 1943 in Agunnaryd, Sweden, when he was 17 years old. Kamprad started by selling goods like pencils, wallets, jewelry, picture frames, and watches. Kamprad tried to keep costs low by purchasing goods in large quantities and passed on a part of this benefit to his customers. In 1947, Kamprad introduced furniture in his product line and found that there was a good demand for it. He sourced furniture from manufacturers in local forests so that he could keep the costs low. As the scale of business grew, Kamprad found it difficult to make individual sales calls and so started advertising in the newspapers. In 1951, he designed a product catalogue and distributed it to potential customers who lived near his store. IKEA opened its first furniture showroom in Almhult, Sweden, in 1953 where customers could see, touch, and feel IKEA‘s furniture before they placed orders. As IKEA was selling furniture at very low costs compared to its competitors, the competitors forced their suppliers to boycott supplying to IKEA. That led IKEA to design and engineer its furniture and then outsource the manufacturing to Eastern European countries, particularly to Poland, from 1955. IKEA designed its furniture to cost less, look stylish and also be functional. In the same year, one of IKEA‟s co- workers decided to remove the legs of a table so that he could fit it in his car and minimize any damage in transit. That idea led IKEA to test flat packing in 1956. IKEA realized that flat packing could bring down the costs of transportation and storage drastically. The company started designing its furniture to support flat packaging. In 1958, IKEA opened its first store in Almhult. The store, spanning 6,700 square meters, was then the largest furniture retail store in Scandinavia. IKEA saw an opportunity to cut costs by letting the customers transport and assemble the products themselves. The company was thus able to sell furniture at around a 30% lower cost than other furniture retailers. In 1963, IKEA opened a store in Oslo, Norway, its first store outside Sweden. In 1965, it opened a store in Stockholm, Sweden. This was then the largest IKEA store and covered 33,000 square meters. The company introduced the self-serve concept in the store. Customers were provided with information about the products on display through written material and information desks. They were invited to check out the products and select them but there were no sales staff. That enhanced the customers‘ shopping experience at the store as there were no salespersons who were constantly urging customers to make purchases. Customers
were given tickets for the goods they purchased and were asked to collect the goods at the delivery docks. There was no door delivery service available and the customers were asked to provide for their own transportation. Car racks could be bought and self-driven vans could be rented. IKEA expanded into more European countries and by 1974; it had 10 IKEA stores in five European countries. IKEA shifted its headquarters from Almhult to Copenhagen, Denmark, as it felt Copenhagen‘s central location made it a better choice to support its European expansion plans IKEA became highly successful in Germany where it opened its first store in 1974. The company realized the huge growth potential it had in Germany and expanded aggressively. By 1980, it opened 10 more stores in Germany. In 1975, IKEA entered Australia by opening a store in Sydney. It continued to expand globally by opening stores in Vancouver, Canada, in 1976, Singapore in 1978, Canary Islands in 1980, Iceland and France in 1981, Saudi Arabia in 1983, and Kuwait in 1984. In 1982, a family controlled charitable foundation named Stitchting INGKA Foundation (SIF) was formed in the Netherlands and ownership of IKEA was transferred to that foundation. This was done to ensure the continuation of business, maintain the family control on it, and minimize taxes as trusts and foundations had tax benefits. IKEA entered the US in 1985 by opening a store in Philadelphia, Pennsylvania. As the company followed the same products assortment and specifications in all of its stores globally, it decided to follow the same in the US. However, this did not work because of the difference in the lifestyles of American and Europeans. For instance, the size of beds used in the US was larger than the size of beds used in Europe. IKEA realized that it had to modify its products to suit the local needs and hence made certain modifications to products like beds and kitchenware. Though the products were modified, the Scandinavian touch was maintained in the style and design. In 1986, Kamprad stepped down from the post of CEO and made B.V. Anders Moberg (Moberg) the President and CEO of IKEA. Kamprad became the advisor of SIF. By the year 1990, IKEA had 89 stores in 21 countries. Along with global expansion through its stores, IKEA also expanded the sources of supply to include countries like China. In its early days, IKEA sourced most of its products from Eastern Europe but as it expanded its business, its dependence on Eastern Europe came down to a certain extent. In the 1970s, around 25% of its supplies were from Eastern Europe. This came down to 15% by 1990. In the same way, IKEA‘s revenue dependence on Scandinavian markets also came down from
85% in 1975 to 26% in 1990. In 1991, IKEA started a furniture manufacturing subsidiary, Swedwood, to manufacture wooden furniture and components. In the 1990s, IKEA further expanded into countries like Taiwan, Malaysia, Spain, and China. In 1997, IKEA launched its website www.IKEA.com where it provided its customers with an online product catalogue. In the mid-1990s, IKEA launched a separate line of products specially designed for children. In 1999, Anders Dahlving replaced Moberg. On October 09, 1999, IKEA celebrated a „Big Thank You‟ event to recognize its co-workers. It distributed IKEA‟s global sales of that day amounting to € 84.85 million, among all its co-workers.
2.2. CURRENT MISSION:
IKEA has a clear mission: selling a wide range of furniture and accessories at a reasonable price so that most people can buy them. By offering a wide range of assortment the key word is functionality, consumers can find everything under one roof. That‘s why you can find everything at IKEA. (IKEA, 2011)
The business philosophy of IKEA can be best described by four goals. To create a highly efficient sales department. Providing ideas for home furnishing. To serve the costumers as well as they are served by a home furnishing shop. Giving people the idea that shopping at IKEA is a day out for the whole family. Since it was founded IKEA has always had concern for people and the environment. The IKEA vision ‗to create a better everyday life for the many people‘ puts this concern at the heart of the business. IKEA has responded to the public‘s rising concern for sustainability in its choice of product range, suppliers, stores and communication. It has also spotted business potential in providing sustainable solutions. IKEA‘s concern for people and the environment encourages it to make better use of both raw materials and energy. This keeps costs down and helps the company to reach its green targets and have an overall positive impact on the environment
2.4. CORE COMPETENCE
IKEA has an original approach to deal with customers: it employs the self-serving method. Customers chose their products, take them out of the shelves and assemble them at home on their own. Although this approach is quite unusual in the furniture business the customers are willing to do that because of the low prices, the easy to handle and storable flat packages and simple constructible furniture. With this limited customer service IKEA safes sales staff and customers don‘t have to wait long to be served.
2.5. ENVIRONMENT AND CORPORATE CULTURE:
As most customers follow the ―green‖-trend IKEA is keen on protecting the environment and trying to minimize any possible damaging effects on it. Therefore IKEA‘s suppliers have to follow some rules: they have to reduce the produced waste polluting the air, water and ground, they have to use recycled or recyclable materials and they have to use wood from known areas. Additionally, suppliers may not use components that are on the list of chemical ‗Compounds and Substances‘ and they may not use the woods from national parks or nature reserves or areas with high conservation values. They may only use the woods if they are certified for their use. IKEA also operates with a few companies such as trade unions, NGOs and it has partnerships with UNICEF, Save the Children and WWF (the global conservation organization). IKEA and these partners are focusing on improving children‘s rights and they are promoting responsible forestry, better cotton cultivation and reduction of CO2 emissions. (IKEA, 2011)
2.6. ORGANIZATION CULTURE
IKEAS founder Kamprad had once written in a manifest that ‗the true IKEA spirit is still founded under enthusiasm, on our constant will to renew, on our willingness to assume responsibility and to help, on our humbleness before the task and on the simplicity in our behavior‘. (Daft, 2010) Page 74 IKEA tries to give employees a family friendly feeling. There is no to the outside noticeable hierarchy among workers, so e.g. managers also have to stock shelves and all design team enjoy complete autonomy in their work but are expected to design new appealing products
regularly.. This corporate culture of IKEA is built upon the philosophy of sustainable development and a continuous strive for improvement in all areas of the value chain which is an effective way to shape the industry to better fit IKEA‘s future strategies. Due to the uniqueness of IKEA's strategic positioning, being the largest competitor in its field, the firm has the advantage of setting the phase of the industry. Cost is another part of corporate culture; the culture emphasizes efficiency and low cost which is not to be achieved on the expense of quality or service.
2.7. IKEA CORPORATE SOCIAL RESPONSIBILITIES
IKEA believe that it is possible to make traditional business objectives and social and environmental responsibility work together for the benefit of the many people. IKEA wants to take a leading role towards a low carbon society, and significantly reduce the carbon footprint from all aspects of its operation, while also helping to reduce coz emission in
society. IKEA CSR activity involves in three main areas Children, better living and
environment project. The IKEA foundation extended its support for UNICEF‘s water and sanitation program in some countries like India, in totally, the IKEA foundation projects together with NICEF, save the children around the world. IKEA wants its products to have the minimum impact on the environment and for these products to be manufactured in a socially responsible way such as lowering price but not at any price In addition, IKEA stores and national retailers are also active in many social responsibility projects to maximize society well-being and produce product which has minimum impact on the environments.
3. ORGANIZATIONAL STRUCTURE AND MANAGEMENT
The present organizational structure can be defined as highly functional with a global market strategy. On that account IKEA is able to maintain centralized control over functional activities and at the same time take advantage of low cost and enhanced quality from international suppliers. On top of that, control over strategic direction is improved and functional lay-offs are minimized. In order to ensure efficiency in the logistics process, the organization has integrated purchasing and distribution processes under one umbrella function. As IKEA continues to expand overseas, the importance of centralized strategic direction will increase. The rapid internationalization triggers a range of challenges imposed on the headquarters in Sweden e.g. increasing difficulty of responding to national needs and cultural nuances, impact of emerging demographic trends forcing IKEA to broaden its focus strategy to respond to varying nation-level consumer groups etc. These changes can influence the maintaining of IKEA‘s global organizational structure. The solution for the problem is to find the proper balance between country level autonomy and centralized intervention through increasing subsidiaries and franchisee autonomy. With logistics complications and long lead times, IKEA is forced to maintain high control levels over its suppliers. The long-term relationship with suppliers guarantees high quality, technology transfers and economies of scale and prevents potential suppliers from trying to
integrate forward and produce competitive products for IKEA's local competitors. Without IKEA's centralized logistics system it could lead to severe store shortages and
3.1. IKEA BUSINESS STRATEGY:
IKEA is cost leader in the home furnishing market. To hold on to this position IKEA is forced to make the internal production as efficient as possible. Otherwise, competitors will take over the cost leader position of IKEA. The suppliers of IKEA are usually situated in low-cost countries. The suppliers can easily access the raw-materials needed for the production and they are capable to reach the distribution channel. The products that the suppliers sell on the market are standard furniture. Because IKEA is such a big company it can buy thousands of pieces of furniture at the same time. With these hug orders it usually gets big discounts, this is called economies of scale. IKEA doesn‘t only provide low cost furniture but also a certain quality. IKEA has become such a strong brand because they create a good mix of low cost furniture with high quality. Besides, IKEA is also a precursor on innovations. Also the brand IKEA is really strong, IKEA stands for low prices and high quality. But also the more expensive furniture has a certain target group. The combination of low cost furniture and more expensive furniture provides that everybody can find what they want at IKEA. To keep this position it‘s necessary for IKEA to keep on refreshing and renewing their service model. But also innovations and new techniques are important to IKEA if they want to sustain their position. ―The global expansion of IKEA gives some more opportunities, not only to expand their brand but also to cut cost even more‖. (The times, 2011)
IKEA's success is based on the relatively simple idea of keeping the cost between manufacturers and customers down. IKEA doesn‘t have its own manufacturing facilities. Instead, it is using subcontracted manufacturers all over the world for supplies (Swedwood). On top of that, in order to maintain low cost, IKEA customers have to assemble the bought products themselves. That creates innovation upstream, which help suppliers to save costs, and downstream, as self-assembly became a large cost saver for customers. On the other hand all R&D activities are centralized in Sweden – IKEA follows the international business strategy.
IKEA follows all of Porters generic strategies. Its mission statement indicates a cost leadership strategy. However, the company is also applying an indirect differentiation strategy due to its unique way of incorporating the customer in the value chain. This combination indicates a focus strategy. At a high level, IKEA designs distinctive products that are also designed for low-cost manufacturing. Most furniture is designed for the customer to assemble, and they are also designed to fit into an efficient packaging cube for low-cost transport, which benefits both the customer and IKEA. Because the company is a very high volume retailer, it gets good prices on what it procures.
To make shopping to easy and comfortable experience, IKEA provides catalogues, tape measures, shopping lists and pencils for writing notes and measurements. The stores‘ main aim is to gather everything for the home under one roof. There are IKEA pick-up cars/bikes available for rental depending on the market customs; also car roof racks are available for purchase at cost. Costs are kept under control starting at the design level of the value-added chain. IKEA also keeps costs down by packing items compactly in flat standardized package and stacking as much as possible to reduce storage space during and after distribution in the logistics process
KEA chose its store location on the city outskirts as the company‘s stores were large and required huge parking spaces. IKEA realized that its customers were visiting stores in their cars and that resulted in higher carbon emissions. Hence, the company made sure that the store location chosen was well connected through public transport so that environment conscious customers could visit IKEA stores using public transport. The stores are designed as very large blue buildings with yellow accents and innovative layout inside. The stores were designed in such a way that furniture was displayed in a real room setup, along with the details of each displayed product. Customers were given pencils and papers at the store entrance to list down product details like item code and respective aisle number in the store‘s warehouse. IKEA‘s intention was to take customers through all of its products so that even a customer
who entered the store with a planned shopping list would check out other products which might interest him/her. However, shortcuts were also provided at a few places and these were mentioned on the floor maps that were made available to the customers.
IKEA COMMUNICATION STRATEGY
IKEA tries to standardize its products to people. Therefore the role of the communication is to make people change their attitude and style and to show them, that IKEA is not what they have thought. It is achieved by a radical change of the tone of communication provocation. The communication of IKEA towards consumers takes place in four types of major media the catalogue and other booklets, websites of the group, another advertising media such as newspaper industry, radio, television, cinema and posting, and the communication in the stores. Promotion and advertising are in important part of strategies used by IKEA .All catalogues and promotional advertising is the responsibility of the headquarters
IKEA –ORGANIZING STRATEGIES
Because IKEA‘s operations are spread worldwide, the management organized the company in four different areas. The first area is product range and development. The second one is purchasing, followed by the Distribution Service and the last area is retailing. All the IKEA stores have the same retail concept. That means that all the methods and services are the same in all IKEA stores. Further Information about the areas can be found in the functional analysis on page 7
Leading and controlling
IKEA is controlled by Ingka Holding BV located in the Netherlands. It controls the operations of most IKEA stores. The foundation is chaired by Kamprad who still has tight control over the operations.
Product and service
IKEA has a wide variety of product range. You can find everything for your home from plants and living room furniture to toys and kitchen appliances. IKEA is known for the splendid service it is providing. The service is one of the reasons why IKEA was able to expand so much. The self service is a big part of IKEA‘s service model. It is a different concept then what the consumers are used to. If consumers buy furniture at IKEA, they don‘t buy a fixed couch or bed but they have to assemble the furniture themselves at home. Although most customers do not mind the self-service, IKEA offers help with the transport and assemblage additionally. (IKEA, 2011)[
VALUE CHAIN ANALYSIS OF IKEA
IKEA has quickly evolved from a local Swedish home furnishing manufacturer into the Largest home furnishing company in the world; partly by convincing their customer to Perform the transport and assembly processes of the furniture manufacturing value chain. They have executed their strategy by building a worldwide sourcing network of high quality global manufacturers to support their growth.
18.104.22.168. IKEA Modified Value Chain
Ikea's role in the value chain is to mobilize suppliers and customer to help them Further add value to the system. Customers are clearly informed in the catalogs of the firm's business systems provides, and what they are expected to add to the final process. 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.
22.214.171.124. This long-term supplier relationship
IKEA 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 IKEA‘s supply chain is global with sales in more than 250 own stores in 24 countries and 32 external franchisees in 16 countries. The stores are supplied through 31 distribution centers, or directly from the 1,350 suppliers in more than 50 countries. IKEA‘s supply chain consequently has a global spread with both sales and
purchasing in all major regions of the world. IKEAs growth has been tremendous and sales are still growing. Currently IKEA plans to open 10-20 new stores every year with a goal to double sales within the coming five year. Considering the pace of growth in sales, the many stores and warehouses, and the fact that some business areas change up to 30% of its assortment every year, supply chain planning is a real challenge. The supply chain needs tight control and high levels of visibility to keep costs down and avoid obsolete inventory and/or stock outs. The IKEA supply chain is mainly make -to-stock (MTS) and only a few Products are made to customer orders. Consequently, the entire supply chain is heavily dependent on forecasts. The regions and the stores have traditionally had a strong power and a high degree of local freedom in terms of planning and placing replenishment requests. This has led to a fragmented supply chain planning with local optimization and a lot of manual intervention with plans throughout the supply chain. Furthermore, due to frequent shortage situations.
4. MARKETING STRATEGY
Marketing, among all business functions, is most down-to-earth in terms of dealing with customers. As ordinary customers, every one of us already knows about marketing. After all, it is all around us. Many people may be under the impression that marketing is only selling and advertising, i.e. what we can see. However, Armstrong and Kotler (2006) argue that selling and advertising is only the tip of the marketing iceberg. There exists a massive network of people and activities, competing for customers‘ attention and purchases. In today‘s marketplace, marketing must be understood in the new sense of satisfying customer needs. They define marketing as the process by which companies create value for customers and build strong customer relationships in order to capture value from customers in return. On the basis of the above definition, we can describe the marketing process in detail and divide it into 5 steps. The first 4 steps create value for customers and build customer relationships. At first, the company has to understand the marketplace and customer needs and wants. Therefore, the company needs to research its customers and the market place in order to collect and manage marketing information and customer data. The second step, designing a customer driven marketing strategy, takes place once the market place and customers are fully understood. The company will select which customers to serve through market segmentation and targeting. A value proposition will also be decided through
differentiation and positioning. After deciding on its overall marketing strategy, in the third step, the company is ready to construct a marketing program, which transforms abstract strategies into real value for customers. The program is also known as the marketing mix which consists of 4 elements (the 4Ps)—product, price, place and promotion. The fourth step, which is actually throughout the whole marketing process, is to build profitable relationships and create customer delight. To achieve the goal, the company must establish strong relationships with marketing partners as well. The fifth step is when the company can finally reap the fruits of its strong customer relationships by capturing value from customers in return. Once the company has created satisfied and loyal customers, it can capture customer lifetime value with a result of increased share of market and customer. However, in order to succeed in today‘s changing marketplace filled with competitors, the company also has to take into consideration the new features of the marketing landscape: advanced technology, globalization and social responsibility. International companies like IKEA have to transform challenges posed by the new marketing environment into opportunities, which echoes Armstrong and Kotler‘s earlier argument—a good marketing strategy is a must.
4.1 Designing a marketing strategy Marketing strategies should be made in the second step of the marketing process based on a thorough understanding of the market and customers. Only when this condition is fulfilled, one may expect a winning marketing strategy from marketing management. Marketing strategy is the marketing logic by which the business unit hopes to achieve its marketing objectives. Marketing strategies are decided by marketing management, which is the art and science of choosing target markets and building profitable relationships with them. This kind of art and science follows certain orientations, namely, the production, product, selling, marketing, and societal marketing concepts. The evolvement of the above concepts can be traced in the development of IKEA‘s global marketing concepts. IKEA‘s business actually started from the production concept, which holds that consumers will favor products that are available and highly affordable. In its earliest days, IKEA was selling products which Kamprad thought would be popular and bought in bulk from Stockholm. The goods were delivered by the local milk van to the train station and then the buyers. In this way, the products were easily available to his customers and at low prices. Because of its competitors‘ jealousy and hostility,
IKEA had to design its own products and search cheaper suppliers in Poland, when the product concept was proved worth trying. The product concept holds that consumers will favor products that offer the most in quality, performance, and innovative features. Nowadays, in order not to impress its customers as it is sacrificing quality when charging low prices, the company has been working on quality assurance even at low prices. The work remains one of the company‘s focuses in 2007 (IKEA Facts and Figures 2006). The other by-product of being boycotted by its rivals and suppliers in Sweden resulted in IKEA‘s inability to follow the selling concept for long. Instead, it found the marketing concept more useful. The selling concept contrasts with the marketing concept that the former starts with the factory, the existing goods and focuses on selling and promotion to make a profit; the latter starts with a well-researched market, focuses on customer needs and gains profits by satisfying customer needs through integrated marketing. In recent years, the world sees a rising trend calling for more ethics and social responsibility. Hence, the rise of the societal marketing concept, i.e. a principle of enlightened marketing that holds that a company should make good marketing decisions by considering consumers‘ wants, the company‘s requirements, consumers‘ long-run interests, and society‘s long run interests. Companies, which ignore ethical issues and social responsibilities, may not be well received in international business. IKEA has realized that and taken actions. The company joined forces with The United Nations Children‘s Fund (UNICEF) to implement the UNICEF-IKEA Project to combat child labor and was praised as an example of how the private sector can do business in developing countries in a socially responsible manner (UNICEF 2005). As one can see in the development of IKEA‘s global marketing concepts, marketing strategies must suit the marketing environment and most importantly always center on customers. Hence, customer-centered marketing strategy has been chosen as the company‘s overall strategic plan. Guided by the marketing strategy, the company designs a marketing mix made up of factors under its control—product, price, place and promotion (the 4Ps).
4.2 The Marketing Mix (the 4Ps) A marketing strategy remains only on paper without detailed planning of the marketing mix. The marketing mix is one of the major concepts in modern marketing. It is the set of controllable tactical marketing tools—product, price, place, and
promotion (the 4Ps)—that the firm blends to produce the response it wants in the target market. One should notice that the 4Ps model is a framework under which marketers can design marketing programs more systematically. It does not overlook those marketing activities whose names do not start with P. Instead, the non-Ps can usually be subsumed under one of the 4Ps. As one can see in Figure 4.1 there are various marketing tools under each P.
Figure 4.1: marketing mix (the four Ps)
The marketing mix starts with product strategy. Product covers more than the physical goods the company wants to sell. It is the goods-and-service combination the company offers to the target market. Thus, IKEA offers a whole range of products, almost everything you need for your home. The same category of products, for example, sofas, IKEA designs models with different features. Some sofa models are even provided with different covers to choose from. IKEA is positioned as selling at affordable price and offering reasonable quality. In order to cut down the costs, IKEA does not wrap its products fancily but with simple and environmental friendly material. Here we see again the societal marketing concept takes into effect. Concerning services, IKEA encourages its customers to do-it-yourself (DIY) but it also provides technical help if needed. Price is the amount of money charged for a product or service, or the sum of all the values that customers give up in order to gain the benefits of having or using a
product or service. As shown in Figure 4.1, in terms of pricing, changing list price is complemented by offering discounts or allowances and altering the payment period or credit terms. Every now and then, IKEA reduces the price of certain products because if they are popular among customers then IKEA can make a bigger order, which leaves the profit margin wider so suppliers can quote lower offers. The company also offers various payment options and credit terms to choose from for the customers. Hence, IKEA handles pricing quite well that its pricing policy emphasizes customer values and integrates with the other 3Ps. Place includes company activities that make the products available to target customers. Related activities are listed in Figure 4.1, such as channels, coverage, assortments, locations, inventory, transportation and logistics. Over the years, IKEA has established an efficient network of delivering its products from the suppliers to its customers. Several logistics hubs around the world are now transporting the products to different countries and territories. IKEA‘s flat packs play an important role in transportation to keep the costs low. Locating the shops in the suburbs of cities also helps to cut down the costs. Like the marketing mix, promotion is a mix of tools as well. It is also called marketing communication mix, consisting of the specific blend of advertising, sales promotion, public relations, personal selling, and direct-marketing tools that the company uses to persuasively communicate customer value and build customer relationships. Ideally, the company integrates the above tools to communicate well with its customers. Apart from advertising on TV, newspaper and delivering brochures with the latest offers to people‘s home, IKEA pays a lot of attention to environmental and ethical issues. IKEA‘s cooperation with NGOs such as UNICEF and World Wide Fund for Nature (WWF) contributes a lot to building a favorable corporation image and good public relations. In a word, an effective marketing program blends all of the marketing mix elements into a coordinated program designed to achieve the company‘s marketing objectives by delivering value to consumers. However, multinational companies, such as IKEA, operate in various markets facing customers from different cultural backgrounds. Hence, to blend the 4Ps into a coordinated program in each of its world markets, companies must understand how culture affects consumer reactions; understand local traditions, cultural preferences, and behaviors.
5. IKEA Group Strong Financial Growth for Fiscal Year 2010
According to HELSINGBORG, Sweden--(BUSINESS WIRE)--IKEA, the world‘s largest home furnishings retailer, is growing and financially strong with sales up 7.7% to €23.1 billion (approximately $29.3 billion). The IKEA Group net profit for Fiscal year 2010* increased by 6.1 % to €2.7 billion, compared to the previous fiscal year. IKEA Group states these strong results were due to increasing sales, higher gross margin and improvements in the cost structure of running the business. "Fiscal year 2010 was a good year financially; sales grew despite tough market conditions in many countries. Profits give us the resources to grow and reach more people on existing and new markets as well as lowering our prices. The main part of the profit was re-invested in existing as well as twelve new stores in order to become even more inspiring and accessible. In times like this, even more people appreciate value for money in terms of good design And functional home furnishing products at affordable prices, and we are committed to continuing that journey,‖ says IKEA Group President and CEO Mikael Ohlsson. Maintaining its commitment to long-term sustainability programs, IKEA continued to invest in renewable energy sources during FY10, nearly doubling the amount of solar panels installed on IKEA locations around the world and purchasing 52 wind turbines in parts of Europe. Also in 2010, the IKEA Foundation donated €45 million to charitable projects to help fund programs designed to improve the rights of children and youth in the developing world. This effort will have benefited 100 million children by 2015, enabling them to create a better future for themselves and their families. During FY10 in the US, IKEA comparable store sales were up 5% with aggressive strategies in lowering prices on many top selling IKEA products. Also, US investments during this time included installing solar panels atop the Tempe, AZ store and initiating 10 more solar energy programs for the next fiscal year. Additionally, IKEA US also announced in June 2010 the phase out of all incandescent bulbs for January 2011. In terms of expansion, construction began on the IKEA store slated to open later this year in Centennial, CO. This location will also be the first to have a geothermal component as part of its HVAC system.
5.1. Liquidity ratios
These ratios measure the short term liquidity and indicate that IKEA has high liquidity and able to meet short term debt as well as the unexpected demands.
5.2. Assets management ratios
, This ratio shows that IKEA manages its inventory effectively , this ratio measures the efficiency of the usage of the fixed assets in sales , this one measures the effectiveness of IKEA in in using its assets
5.3. Debt management ratios
. Measures the percentage of assets which is provided by the creditors
5.4. Profitability ratios
. This measures the overall ability of IKEA to utilize the assets in which it has invested to earn profit
. . This represents a fundamental indication of the overall profitability of IKEA
Income statement Revenue Cost of good sale Gross profit Operating cost Operating income Total financial income and expense Income before minority interests and taxes Tax Income before minority interest Minority interest Net income Balance sheet – Asset Property, plant and equipment Other fixed asset Total fixed asset Inventory Receivable Cash and securities Total current asset Total asset
2010 23539 12,454 17,085 7,888 3,197 76 3,273 577 2,696 -8 2,688 2010 15982 2683 18665 3415 2238 16955 22608 41273
% 100 52.9 47 34 14 0.3 13.9 2.5 11.5 -0.03 11.4 % 38.7 6.5 45.2 8.27 5.42 41 54.8 100
2009 21846 13,878 9,968 7,202 2,766 145 2,909 384 2,525 9 2,534 2009 14206 2652 16858 3116 2797 14334 20247 37105
% 100 54.4 45.6 32.9 12.6 0.65 13.3 1.75 11.5 0.04 11.5 % 38.2 7.1 45.4 8.4 7.5 38.6 54.5 100
Balance sheet – Equity and liabilities Equity Long-term liabilities Other non-current liabilities Total other non-current liabilities Short –term liabilities Other payable Total current liabilities Total equity and liabilities
2010 22,841 4,296 1,325 5,621 7,724 5,087 12,811 41,273
% 56.5 10.4 1,325 5,621 18.7 12.3 31 100
2009 19,775 4,509 1,395 5,904 7,251 4,175 11,426 37,105
% 53.3 12.2 3.8 15.9 19.5 11.3 30.8 100
6.1.External general and industry environment
6.1.1. Political Factors:
Increasing globalization and protectionism, presents a challenge as well as an opportunity to IKEA. The challenge will be to compete against unknown forces and to source the best quality/financially viable products from world over. IKEA can enter the markets of emerging companies through joint ventures or partnerships to explore these new markets. At the same time, however, the company has to be wary of protectionist policies of many host countries it operates in since there is a real risk that countries may impose high tariffs on goods imported in an attempt to spur domestic production. However, IKEA may stand to lower its costs as governments begin to lower taxes or provide subsidies to help businesses stay afloat in this economic crisis.
6.1.2. Economic factors:
The fluctuating commodity and raw material prices all over the world result in rising purchasing costs for IKEA. This will have an impact on the margins of the organization and might lead to passing over the cost to consumers by increasing prices of most things in the supermarket. Furthermore, fluctuating commodity and raw material prices leading to an overall situation of increasing prices, resulting in decreased competitiveness. The credit crunch can impact IKEA negatively as it might decrease the purchasing power of consumers and though they will still buy the essentials they may be more cautious. Furthermore, furniture, unlike fast moving consumer goods, are durable and can last for several years and in such economic uncertainty. Consumers may be reluctant to change what they perceive to be still serviceable sets. They may also spend less on luxury items, something that has a greater profit margin for IKEA. All this may result in lowered sales and thus, reduced margins for the firm.
At the same time, leading to an overall situation of increasing prices, resulting in decreased competitiveness - something which will appeal to cost conscious consumers. This may cause IKEA to reduce its margins, affecting profitability.
6.1.3. Social Factors:
As Ikea forays into the lesser tap markets of China and India, social factors may also come into play. Asian societies are generally more savers than spenders and in such economic certainty; Asian consumers may be unwilling to spend on new furniture, preferring to save for a rainy day. At the same time, the more affluent consumers who are able to spend may be unwilling to buy products from Ikea which has a reputation of requiring self-assembly.
6.1.4. Technological Factors:
RFID (Radio Frequency Identification Device) technology can be used for significant benefits to the supply chain of IKEA. If adopted, this technology will lead to less inventory for the supermarket firms resulting in lower cost for the company which could translate into cheaper prices.
6.2.IKEA SWOT Analysis
Leading retailer of home furniture & furnishings Strong global brand image IKEA‘s vision (create a better everyday life for the many) Global presence of more than 35 countries IKEA has its own industrial group Self -assembled furniture Not a traditional furniture 20-40 % Low cost furniture than competitors and no extra Cost included Effective Value chain & procurement Less time services and carried away material Product differentiation (product range) Single global strategy No wastage of material Unique business model IKEA work environmentally friendliness
Stuck in the middle Detracting to attain organization plans. The size and scale of its global business
No enough distribution channels The problem of product recalls Difficulties to understand different countries attitudes and tastes IKEAs little transparency‖.
Opportunity to enter in broad market such as Asian market To sustain in long run Online orders or E-marketing Increasing average growth up to 11% Opportunity to create economic designs with existing workforce and designers To involve every contributor in value chain in optimal manner Focus on differentiated products for the Asian market Continuing demand for low prices Growing demand for products which do not harm the environment for companies to use less water when making products and reduce their carbon footprint
To sustain in long run To follow the strategies more than one for long run Changing social trends Market Forces market forces – as more competitors offer similar products environmental issues across the global
6.3.IKEA-Internal Factor Analysis Summery (IFAS)
Weigh t Weigh ted score
Internal Factors Strengths A strong global brand image Leading retailer of home furniture and furnishings. IKEA has its own industrial group Product Differentiation 20-40% low cost furniture than competitors and no extra cost included IKEA work environmentally friendliness Less time and carried away material Global presence of more than 35 countries 1. Weakness The size and scale of its global business Difficulties to understand different countries attitudes and tastes Targeting single market Stuck in the middle No enough distribution channels Total score
0.1 0.1 0.1 0.08 0.07 0.06 0.06 0.05
4 3 4 3 4 3 2.5 3
0.4 0.3 0.4 0.24 0.28 0.18 0.15 0.15
Core competencies Competitive advantage Competitive advantage Business strategy Maximizing market share Competitive advantage Ease of delivery Wide global reach
0.1 0.08 0.07 0.06 0.07 1.00
4 3.5 4 2.5 3
0.4 0.28 0.28 0.15 0.21 3.42
Management Issues Cultural issue Weak strategy Strategy issues conflict Poor retail strategy
6.4. EXTERNAL FACTOR ANALAYSISSUMMERY (EFAS)
External Factors Opportunities Focus on differentiated products for the broad market To sustain in the long run Online orders or web marketing Growing demand for products which do not harm the environment Increasing growth Opportunity to create Economic designs Opportunity to enter in the broad market continuing demand for low prices
0.1 0.09 0.07 0.06 4 4 2 3.5 0.4 0.36 0.14 0.21
Weight Rating Weight ed score
Business strategy in broad market Critical for success marketing strategy Environmentally friendly product Business expansion Customization
0.06 0.06 0.05 0.04
2 4 2.5 3.5
0.12 0.24 0.125 0.14
Opportunity to gain market share
market forces – as more competitors offer similar products To sustain in the long run keep the core values alive
0.1 0.07 0.07 3.5 4 3.5 0.35 0.28 0.245
competitive edge Critical for success Company becomes larger and more diverse. Frequent change in strategy Treat to the business Fierce competition Monitor environmental law very carefully
follow the strategies for more than 1 year Dynamic global environment Threat of new entrants Environment Issue across the globe Total score
0.07 0.06 0.05 0.05
3 4 3 3.5
0.21 0.24 0.15 0.175
6.5. STRATEGIC FACTORS ANALYSIS SUMMERY (SFAS)
Strategic factors SFAS
Weight Rating Weighte d score
S1: A strong global brand image S2: Leading retailer of home furniture and furnishings. S3: Product Differentiation S4: 20-40% low cost furniture than competitors and no extra cost included S5: IKEA has the own industrial group W1: The size and scale of its global business W2: Difficulties to understand different countries attitudes and tastes W3: No enough distribution channels O1: Focus on differentiated products for the broad market O2: Growing demand for products which do not harm the environment O3: To sustain in the long run O4: Online orders or web marketing O5: Opportunity to create Economic designs T1: Threat of new entrants T2: Dynamic global environment T3: market forces – as more competitors offer similar products T4: Environment Issue across the globe T5: keep the core values alive
0.08 0.07 0.06 0.05 0.04 0.04 0.05 0.06
4 3 3 4 4 4 3.5 3
0.32 0.21 0.18 0.2 0.16 0.16 0.175 0.18
Core competencies Competitive advantage Business strategy Competitive advantage Competitive advantage Management issues cultural Issues Poor retail strategy
0.05 0.04 0.07 0.06 0.05 0.07 0.06 0.05 0.05 0.05
4 3.5 4 2 4 4 4 3.5 3.5
0.2 0.14 0.28 0.12 0.2 0.28 0.24 0.175 0.175 0.175 3.57
Business strategy in broad market Environmentally friendly product Critical for success Marketing strategy Customization Fierce competition Threat to the business competitive edge Monitor environmental law very carefully Company becomes larger and more diverse.
6.6. Tows- metrics analysis
6.7. PORTER’S SIX FORCES MODEL ANALYSIS FOR IKEA
Threat of new entrant Power of Relative stakeholser
Threat of subsititude product & services
Rivalry among existing foms Bargaining Power of Buyers
6.7.1. Power of the buyers
Bargaining powe of suppliers
There is a little power because of the exiting low-price options. Furniture and other small items have an alternative and consumers have limited alternative choices that make the IKEA unique among its competitors. In addition the low price strategy is another way of the company to response in buyer‘s need.
6.7.2. Power of supplier
IKEA has its thousands of suppliers that set standards in delivering the material. Once in a while, for some products, the IKEA bids for the contracts with multiple companies to craft the same products. Most of the supplier work in IKEA and compete with other suppliers, and they have a little bargaining power. Because of the low-pricing, IKEA‘s profit margin also affects the price in raw material than by prices in labor.
the IKEA‘s furniture competitors‘ offers different styles and functionality corning targets a new low cost in terms of furniture line; cratel& Barrel offers a furniture in box which is subject in higher prices Ethan Allen aimed at a more upscale market; Wal-Mart is equipped in a big box furniture that is categorized under the general store must have items, but don‘t have much of a style. IKEA is the most successful in delivering the complete package for the customers that reflects on weak rivalries.
There is no specific product that can be a substitute for furniture but IKEA at least, have to keep up with the latest trends, to avoid becoming out of style. Another advantage is that through their cutting and leading technology, IKEA could copy any new style fairly and move each the product into its stores.
6.7.5. New Entrants
Another furniture company is rolling on low-cost strategy and should compete with the IKEA as the excellent company in delivering the furniture and house wares. IKEA stores do not reach many small towns and this is an opportunity for the new competitors to move into small and midsize cities with smaller stores and less selection. But not easier in city because new entrants have to establish a vast supply chin and create a unique brand name.
6.7.6. Relative power of stake holder
IKEA has being opened with all its stakeholders. This involves building trust through good communication with consumers, co-workers, key opinion formers and the press. Being sustainable is a central part of IKEA's image.
In order to gain high market share in different country, IKEA need to emphasize a ―pull‖ marketing strategy by launching a campaign that promotes furniture as a fashion statement. By pull marketing strategy people will be aware of good quality furniture. Asia is considered as emerging market and has largest consumers‘ base with more than three billion populations, IKEA need to build many stores in these countries to facilitate easy access to stores without time consuming. For IKEA to have competitive advantage, they should design a web site which can help the customers to design their own furniture (customization), with the dimensions and the colors they need. This will give them large market segmentation that the customers would like to design their furniture. IKEA is known by their stylish and affordable furniture retail business. So to sustain in this position IKEA need to upgrade its products continually based on costumers test and preferences.
IKEA is a well-known global brand with hundreds of stores across the world. In order to improve performance, it must assess its external and competitive environment. This will reveal the key opportunities it can take advantage of and the threats it must deal with. IKEA responds to both internal and external issues in a proactive and dynamic manner by using its strengths and reducing its weaknesses. Through this, IKEA is able to generate the strong growth it needs to retain a strong identity in the market.
IKEA's passion combines design, low prices, economical use of resources, and responsibility for people and the environment. The company's products, processes and systems all demonstrate its environmental stance. For example, clever use of packaging and design means more items can fit into a crate, which means fewer delivery journeys. This in turn reduces IKEA‘s carbon footprint.
Competitive Strategy: Techniques for Analyzing Industries and Competitors Michael E. Porter Competitive Advantage: Creating and Sustaining Superior Performance Michael E. Porter Thompson, AA Strickland AJ & Gamble J 2005. Crafting and Executing Strategy (Fourteenth Edition), McGraw-Hill, New York, pp. C2-C32. Anonymous ¡¥IKEA strategy targets big/bigger/best stores¡¦, DSN Retailing Today; Nov 8, 2004; 43, 21; ABI/INFORM Global, p. 28 K. Kling and I. Goteman, 2003 ¡¥IKEA CEO Anders Dahlvig on international growth and IKEA¡¦s unique corporate culture and brand identity¡¦, Academy of Management Executive, Feb 2003, Vol. 17,
WEB SITE: http://www.thetimes100.co.uk/case-study--swot-analysis-sustainable-business-planning--110-368-1.php http://www.IKEA.com/ms/en_US/about_IKEA/pdf/sustainability_Report_2010.pdf
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