You are on page 1of 7

III. Analysis A.

SWOT Analysis & Porters five Forces Strengths Customer knowledge Constantly using innovations to drive costs down Supply chain integration Brand reputation and market presence Diversified product portfolio

1. 2. 3. 4. 5.

Weaknesses 1. Negative publicity 2. Decreasing quality 3. Standard products Opportunities 1. Further expansion into developing economies 2. Growing online sales 3. Expansion to growing grocery market Threats 1. Intensifying competition 2. Growth of average consumer income B. Porters Five Forces Competitive rivalry among firms: IKEA operates in an extremely competitive industry, defined by many other low-priced, good quality furniture manufacturers namely Galiform, Euromarket Designs Inc., Argos and so forth. Given the attractiveness of the of DIY (Do-it-yourself) furniture industry, IKEA continues to compete and grow in markets such as China, and Japan. previously premium-priced furniture manufacturers Dreams (UK) is now reported to increase its market share (Mintel Oxygen, 2010) against IKEA, thus making competition even fiercer. However, considering that furniture is now low spending priority according to consumer behaviour affected by recession, competitive rivalry is likely to diminish. Threats of new entrants This force is considered weak and the probability of development of new competition for the furniture retailer is insubstantial, due to market saturation, high amount of capital investment, and skilled labour required to become a global giant in discounted-DIY- furniture manufacturing sector.

Other factors such as suffering of pricy-labelled household items and furniture considered as a low spending priority (Mintel Oxygen,2010) due to recessed economies, further weakens this industrial force.

Bargaining power of suppliers This force is weak because suppliers of IKEA are constantly competing to maintain their relationship with the global giant who can easily access resources and capabilities in the form of potential suppliers, seeking opportunities to form affiliation with IKEA. However, IKEA values to create the strategic relationships with suppliers, to empower its suppliers in certain extent excluding their bargaining power. Threat of substitutes Threat of substitutes is weak force here. IKEA specializes in manufacturing functional, low-cost, good-quality furniture. Even though customer retention rate remains best with IKEA and Argos, nonetheless combination of IKEA characteristics remains un-matched by its competitors. IKEA brand perception trendy also surpass Argos affordability and John Lewis quality, due to unmatched product and service functionality. Bargaining power of buyers This force is strengthening by factors such as intense competition, and wide choice of substitute products. Nevertheless, the threat of substitute products is weak because of IKEA unbeatable expertise in manufacturing low-cost, good-quality flat pack furniture. C. SEVEN Ps of Marketing Mix 1) Product As seen in the goods-service continuum, IKEA as a product have both tangible and intangible aspects, and it is the thing you offer to satisfy your customers wants and needs. Within this element, one need to consider such things as product range; its quality and design; its features and the benefits it offers; sizing and packaging; and any add-on guarantees and customer service offerings. Following are the range of products in which IKEA has diversified itself: Eating Desks Mirrors Cooking Bathroom Storage Childrens IKEA Tables Textiles and rugs Tools and hardware TV and media furniture Beds and Mattresses Chairs Clothes Storage Decoration Flooring IKEA Family products Kitchen cabinets and appliances Lighting Small storage Sofas and Armchairs Storage Furniture

2) Price Sound pricing decisions are crucial to a successful business and should be considered at both long-term strategic and short-term tactical levels. Within this element of the mix IKEA considers list price and discount price; terms and conditions of payment; and the price sensitivity of the market . Worth remembering is the connection of price to its position in the marketing specifically that only one operator in any market can be the cheapest. Jostling between competitors for this position is rarely wise. Keys to IKEA's Low Prices Just how does IKEA manage to offer such consistently low prices? Many people think that it's because the furniture is made cheaply, which isn't exactly true. Some of IKEA's less obvious cost-saving strategies: Recycling The Recovery Department (of which, the AS-IS room is part) is responsible for sorting and recycling all recyclable materials, including packaging broken down in-store as well as materials collected from customers at recycling donation bins where available. Automatic selling Despite the showrooms showcasing IKEA furniture in real living arrangements (typically located upstairs), IKEA is a warehouse store designed to maximize customer self-sufficiency with minimal reliance on staff assistance. Cost savings stem from reduced wages, training costs and lower design, maintenance and outfitting costs associated with the marketplace and warehouse areas of the stores. Economies of Scale IKEA utilizes it's massive economies of scale to secure long-term contracts with manufacturers and to reduce costs of raw materials through bulk-buying. Because of their sheer size, they can demand lower prices for materials which suppliers can afford to give if they have a steady income. Transportation All transportation of IKEA products is by cargo container - either via cargo carrier for overseas transportation or via tractor-trailer for ground transport rather than by more expensive air transport. Transportation costs are also minimized by carefully locating distribution centers and stores for optimum travel efficiency. Minimal packaging The ubiquitous plain brown corrugated cardboard is the packaging material of choice for a reason - it's cheap, easy to recycle and can be made to fit around almost any product. Small labels on the boxes identify the products within. Printing wordless instruction materials also saves money by eliminating the need to translate the written word to the native languages of the many nations in which IKEA retails.

3) Promotion This is the element of the marketing mix that most people mean when they talk about marketing. IKEA is one of the world's largest furniture retail brands. The brand itself is based upon the concept of offering home furnishing products at value prices. The promotions mix includes TV advertising, sponsorship, newspaper and magazine advertising, and many other elements. Some of its TV advertising is considered controversial whilst others see it as pretty plain. Recent campaigns include the IKEA kitchen party advert Be Happy Inside campaign and the kitchen party advert. Obviously their iconic yellow IKEA logo serves to support the brand.

4) Place Marketers love models that explain the way they work; they love it even more when elements of each model begin with the same letter hence the use of the word Place to describe distribution channels . The IKEA group is an international business, which sells furniture and accessories in Europe, North America, Asia and Australia. IKEA's main business relates to its retail stores. Many of these stores are in out-oftown locations and do not benefit from the footfall of primary and secondary locations. The stores themselves are very large. Many of the stores even have restaurants, food shops and a Swedish market. Some stores even have a bespoke play area. 5) People The impact that your people can have on your marketing cannot be underestimated. The IKEA brand is based upon strong relationships with customers and customer satisfaction. So, serving and working with people is central to IKEA's business philosophy. In 2011 its then president Mikael Ohlsson made a statement in their annual report outlining his view on the business and its future. In his view the business would be launching many energysaving alternatives to conventional light bulbs. He commented that their kitchen range would offer many smart, eco-friendly solutions which would include water-saving taps, appliances and a special system that would sort household waste ready for recycling. 6) Process The process part of the mix is about being easy to do business with. If youve ever become frustrated at call centers that cant answer your questions, or annoyed when you cant buy something in a shop because the computerized till doesnt recognize that it exists, even when you can see it on the shelves, youll know how important this element can be.

7) Physical Environment The customer drives to the store, selects a product, orders, it, and then collect it, only then to have to drive the product home themselves. This is all part of the low pricing commitment. When you sell tangible goods, you can offer your customer the chance to try before they buy, or at least see, touch or smell. Interestingly IKEA was a business that encompassed sustainability quite early in its strategy. Many of its products are recyclable IKEA has invested in very green energy solutions such as solar power. Physical evidence for IKEA is its very large stores. They are out of town and offer a huge selection of furniture products. Stores tend to be well-equipped with restaurants, very large car parking, the space to move around and modern display technologies. D. Value Chain Analysis Inbound logistics Distribution of products to the stores from 27 distribution centres 10,000 IKEA products are manufactured by 2000 suppliers and transported to the IKEA stores (Berger, 2011, p.3) Jobs in logistics account for about 20 -25% of each stores co-workers (IKEA, online, 2011) Operations Operations in more than 38 countries; 208 company operated stores in 26 countries, remaining stores operated by franchisees. IKEA does not manufacture its own products Outbound logistics Transportation of products is done by customers Marketing and sales Targeting mainly families with lower income, students and singles Family-friendly environment within stores Services Very limited level of customer services according to the chosen business strategy Information to customers mainly provided through explanatory catalogues and displays Low number of sales assistants in stores E. Support Activities Firm infrastructure Hierarchical tall organisational structure The IKEA Group is controlled by INGKA Holding B.V. that belongs to Stichting INGKA Foundation Stores are large in size

Human Resource Management High level of commitment to HR practices Effective staff training and development programs Technology development Research and development activities are initiated in Sweden Extensive use of information technology in various business processes Procurement No need for raw materials as IKEA does not produce own brand products Long-term strategic relationships with suppliers IV. Analysis of Course of Action Alternative course of Action Research and Development Programs Pros Better ideas and guidelines for IKEA regarding current trends, behaviour and entire market needs, therefore providing superior customer value Catches attention and creates good customer traffic at the stores resulting to more sales and customer loyalty Local companies established marketing operations, experiences and knowledge will back-up IKEA Cons Expensive that might affect products price rates

Consistent regulation of implemented promotion activities Merging with Local companies

Improper regulation might end up to customer disloyalty Collision of different companies culture and principles

V. Recommendations Recommendations to increase Competitive Advantage based on its: 1) Marketing Strategy 2) Resources Recommendations to increase Market Coverage based on: 1) Manpower Recommendations to increase Competitive Advantage based on its: 1) Marketing Strategy 2) Resources

Recommendations to increase Market Coverage based on: 1) Manpower MARKETING STRATEGY Evaluate market-driven strategies in different countries Form a committee that will monitor the status of each region Submit to the committee a monthly report of the sales movement for proper studying used for future strategies RESOURCES Go Green! As part of Corporate Social Responsibility, they may continually promote the awareness in the conservation of the environment. they may have a formal memorandum in its Research & Development Cluster that only materials that will not contribute to environmental degradation will be used in the course of the production

MANPOWER (Organization & Management) Broaden its selection base of hiring people. There should be a mix of backgrounds and personalities: This will promote: 1) Diversity 2) Infusion of New Ideas 3) Ensures the Richness of the Culture in

Product Development