SESSION MAY 2020

TITLE: IKEA’S SUCCESS IN AN UNORGANISED FURNITURE

MARKET LIKE INDIA

RESEARCH QUESTION:

To what extent can the current marketing strategy of IKEA help it to

increase its market share in the furniture market in India?
 1. SITUATIONAL ANALYSIS
a. SWOT ANALYSIS
b. PORTERS FIVE FORCE ANALYSIS
2. MARKET RESEARCH
3. GROWTH STRATEGY
4. PROMOTION MIX
5. PLACE MIX
6. PRODUCT MIX
7. PRICE MIX

SITUATIONAL ANALYSIS

(i) SWOT Commented [RC1]: https://www.managementstudyguide.co

m/swot-analysis-of-ikea.htm

https://www.marketing91.com/swot-analysis-ikea/

https://notesmatic.com/2016/09/ikea-swot-analysis-2016/

Strengths Weaknesses

 Clear Vision

 Brand Value1  Low rate of returns4

 Wide range of DIY products R&D2  Quality is compromised when cost

 Financial Strength3 consciousness is focused5

 Cost conscious- benefits from  Lack of knowledge of market in

economies of scale India

 Supplier chin in India already

established

1
https://www.marketing91.com/swot-analysis-ikea/
2
https://www.howandwhat.net/swot-analysis-ikea-ikea-swot-analysis/
3
ttps://www.marketing91.com/swot-analysis-ikea/
4
https://www.livemint.com/Companies/hpM1JrPxNlQQHpvwykMLeN/Five-challenges-for-Ikea-in-
India.html
5
https://www.howandwhat.net/swot-analysis-ikea-ikea-swot-analysis/
 Opportunities  Threats

 Emerging middle and high income  Unorganized furniture market of

groups in India India and growing competition.8

 Demographic trends favorable  Increased competition from

 Lower labor cost indigenous businesses9

 Strategic partnerships with other  Finding space for large stores10

brands  Increased cost of raw materials

 High population of India6 as higher because they are imported.

population means higher sales.  Counterfeit concerns11

 Booming market of real-estate and

construction in India7.

Strengths:-

IKEA has a very clear vision of creating a better everyday life for the many people 12.

Conbined with this according to the CEO “ AT IKEA the people, the community and our

6
"India Population (2019)." Worldometers - Real Time World Statistics,
www.worldometers.info/world-population/india-population/. Accessed 13 Sept. 2019.
7
"Indian Real Estate Industry: Overview, Market Size, Growth, Investments...IBEF."
Business Opportunities in India: Investment Ideas, Industry Research, Reports |
IBEF, July 2019, www.ibef.org/industry/real-estate-india.aspx. Accessed 13 Sept.
2019.
8
"India Furniture Market Size, Demand, Opportunity & Growth Outlook 2023."
Research and Markets - Market Research Reports - Welcome, Research Nester Pvt.
Ltd., www.researchandmarkets.com/reports/4326520/india-furniture-market-size-
demand-opportunity. Accessed 13 Sept. 2019.
9
https://www.livemint.com/Companies/hpM1JrPxNlQQHpvwykMLeN/Five-challenges-for-Ikea-in-
India.html
10
https://www.livemint.com/Companies/hpM1JrPxNlQQHpvwykMLeN/Five-challenges-for-Ikea-in-
India.html
11
https://www.howandwhat.net/swot-analysis-ikea-ikea-swot-analysis/
12
https://www.ikea.com/ms/en_JP/about_ikea/the_ikea_way/our_business_idea/index.html
contribution to safeguarding the health of the planet is the biggest priority.” 13 It IKEA being

a multinational private limited company has its presence in 38 countries and caters

to 600 million customers annually worldwide. This has resulted in brand recognition.

Moreover risks can be spread across its businesses worldwide. They offer a wide

range of Do-It-Yourself (DIY). However whether this is replicated in India is yet to be

seen. Cost advantage enjoyed by the company due to economies of scale is

translated into lower prices for its customers. The price of IKEA products are also

very low and there are over 1000 products which have price less than Rs 200 14 in

India. This can result in high sales revenue and help them penetrate the market

which will also increase their market share in India. Augmented products such as the

restaurant present in IKEA outlets attracts a lot of customers in Hyderabad as they

have a very low price, this helps the customer to stay in the IKEA store for a long

time as well because they do not need to worry about their meals.

IKEA has been sourcing from India for its stores worldwide for the past 30 years

hence having an established a supply chain in the country which will help make its

cost effective.15

Weakness:-

Prices of their products are lower in India. With high production cost ROCE is still a

concern. Moreover with their objective of providing low cost furniture the quality is

sometimes compromised upon. This has already happened with the recall of jugs

13
https://www.indiaretailing.com/2018/09/10/retail/the-ikea-india-experience-strategies-and-future-
plans/
14
$1=70 INR
15
https://www.indiaretailing.com/2018/09/10/retail/the-ikea-india-experience-strategies-and-future-
plans/
made in India.16 This has been witnessed in many parts of the world. Moreover the

rate of return on investment is very low with the large 85% of IKEA India's net loss

widening to 114% to Rs. 368 crore in FY1817

Opportunities:-

As India is an emerging country where the per capita GDP is around Rs 1,13,50018.

It is forecasted to more than double in ten years’ time19. Wealth in the country is also

projected to surpass UK and Germany by the year 202720. The population of India is

also very high and it consists of 17.71% of world population, Moreover India has

62.5% of its population in the age group of 15-59 years which is ever increasing and

will be at the peak around 2036 when it will reach approximately 65%this factor will

lead to higher sales of IKEA products.as lifestyles and preferences change with new

metropolitan cities being established21 With the middle income group, one of the

huighest in the world, is estimated to be about 400 million. With increasing

purchasing power, this is going to be one of the largest market (CAGR of more than

14%) for furniture worldwide. 22 Lastly, the market of real estate and construction is

booming in India, which buys almost 65% of the furniture buyers. This booming

16
https://economictimes.indiatimes.com/industry/services/retail/ikea-recalls-made-in-india-mugs-due-
to-excessive-chemicals/articleshow/73538620.cms?from=mdr
17
https://brandequity.economictimes.indiatimes.com/news/business-of-brands/ikea-indias-net-loss-
widens-114-to-rs-368-crore-in-fy18/67368700
18"Income in India." Wikipedia, 14 Aug. 2019,
en.wikipedia.org/wiki/Income_in_India#targetText=Financial%20Year%202015%2D2
016,US%245%2C350%2C%20and%20ranked%20106th. Accessed 14 Sept. 2019.
19
https://www.financialexpress.com/market/indias-per-capita-income-to-more-than-double-in-10-
years-morgan-stanley/874436/
20
https://www.barrons.com/articles/indias-wealth-to-surpass-the-uk-and-germany-by-2027-
1529952755
21
https://www.drishtiias.com/to-the-points/paper1/india-s-demographic-dividend
22
https://www.marketwatch.com/press-release/india-furniture-market-overview-by-share-size-
industry-players-revenue-and-product-demand-forecast-2016-2023-2019-08-07
market will generate more sales revenue for IKEA as more customers will be coming

because of more attractive prices.

Threats

The unorganized furniture market is still 85% in India. IKEA will also face more

competition like Godrej Interio and Usha Lexus with more competitive prices which

have already established businesses in the organized market. The government of

India also might not support IKEA as they will get imported raw materials which will

depreciate the currency. Also, they will be earning from India and they might use

India’s currency to invest in other places which will in the end reduce the economic

growth of the country. As the production cost is high because of the imported raw

materials and high prices of wood in India, the company might be suffering in loss

because of their current strategy to penetrate Indian market.

(ii) PORTERS FIVE FORCE ANALYSIS- INDUSTRIAL ANALYSIS

Porter’s five force field analysis will be used for understanding the forces that shape

competition within the Indian furniture market Industry and to identify ikea’s

strategy’s potential profitability. The five forces are the power of suppliers, the power

of customers, competitive rivalry (Rivalry amongst existing firms), threat of

substitution and threats of new entry firms for IKEA is the market.
i) Competitive rivalry

The rivalry between existing firms in Indian furniture market is already very intense

with entry of new firms23 and the major competitors of IKEA in the market are EVOK,

Usha lexus, Godrej Interio, etc.24 As, IKEA is a new entered firm in the market it has

low market share because of high competition, less brand loyalty, cultural differences

and quality differences. This means that there are higher substitutes in the market for Commented [2]: ????

23 "India Furniture Market to Surpass USD32 Billion by 2019." Market Research

Reports, Marketing Research Company USA, Market Size | TechSci Research,
www.techsciresearch.com/news/218-india-furniture-market-to-surpass-usd32-billion-
by-2019.html. Accessed 28 Sept. 2019.
24 Patil, Sanket. "Top 10 Furniture Companies in India - 2019 | Best Furniture

Manufacturers." Things in India, 10 Jan. 2019, thingsinindia.in/furniture-companies-

india/. Accessed 28 Sept. 2019.
IKEA’s products as customers can seek other brands also because of which they

need to keep the prices competitive in the market. Suppliers and buyers also seek

for the company’s competition to if they are able to offer a higher price of supplied

materials and a lower price for the finished goods for the customers.

The low market share of IKEA leads to low power of the market because of which

they need to keep the prices of the product low leading to less profit from products.

Also, Godrej Interio being the market leader sets the price of products which has to

be followed by IKEA which might be less than the production cost of IKEA. This will

have an adverse effect on IKEA. Although, the marketing strategy followed by them

is very unique because of which customers get attracted to buy their products

because of which they are increasing their market share quickly.

ii) Threats of new entrants

IKEA itself being a new entered firm in the market has many disadvantages like low

customer loyalty, low market share, etc. The Indian furniture market is expected to

grow substantially in the next 2-3 years because of which it may attract new

companies to enter the Indian furniture market. The more the amount of firms are

there, the more the risks of IKEA’s position in the market which might lead to the

downfall of its existence in India.

However, the threats of new entrants in the Indian furniture market is already low

because of high competition and competitive prices. These high barriers to entry in

the furniture market by the market leaders and competitive prices leads to higher

profits for the existing firms and decrease their chances of losses. IKEA can be the

market leader if they invest more on the quality of the product as they have used
extremely good marketing techniques because of which the awareness of the first

IKEA store in Hyderabad, India is known nationally.

iii) Bargaining power of the buyers

The bargaining power of the customers of IKEA in India is extremely high which

leads to decreased sales revenue because there is high competition and not being a

market leader makes them more vulnerable to price reductions of their products.

IKEA has diversified product portfolio as they have products which are for the poor,

middle and the upper class leading to wider customer base. India being a developing

country has the most amount of middle class and lower class people contributing the

market which is a benefit for IKEA as they have launched more than 1000 products

with a price less than Rs 200.

The customers have more power in the market because of competitiveness which

will force IKEA to reduce the prices of their products leading to their losses. The

price strategy of IKEA is to keep the prices of the products which are for lower class

low and the high end products to be high. This will help IKEA to penetrate the market

and therefore help IKEA to benefit from the increase in market share.

iv) Bargaining power of suppliers

IKEA seek for various suppliers in India25 so the power of the suppliers in the market

is very low because of which their cost of raw materials are low with even lower cost

of production in the process. IKEA also form a long-term strategic relationship with

25"Indian Ikea Manufacturers | Suppliers of Indian Ikea (Product And Company,US

Import Trade Data) — Panjiva." Panjiva - Global Trade Insights — Panjiva,
panjiva.com/Indian-Manufacturers-Of/ikea. Accessed 28 Sept. 2019.
the supplier because of which they do not face supply problems and has less lead

time. IKEA has a chain of suppliers because of which there is no dependence on a

particular supplier which decreases the competition in the market as they can keep

the prices low because of low costs of raw materials for them.

As a result of this IKEA implements an IWAY policy which includes rules related to

social, environmental and social impacts of their processes. These suppliers will in

turn conduct audits for their suppliers26 which increases the quality of the products

provided by IKEA and brings all over improvement for the economy as well as the

products provided by them. If the suppliers fail to meet the requirement of the IWAY

standard it is removed from the supplier list of IKEA which might cause the supplier a

heavy damage because all the suppliers are small-scale producers compared to

IKEA.

v) Threat of substitutes

IKEA is not in threat from substitute products as it a very good brand image because

of which customers have more trust in the brand. This trust helps the brand to keep

and increase customer loyalty because of which they can charge more for their

products. Although, IKEA is using low pricing strategy in India as it is a developing

country, this strategy of IKEA increases their brand recognition as even the lower

class will be able to visit IKEA store as they sell more than 1000 products for less

than Rs 200.

"Suppliers." IKEA.com – International Homepage – IKEA, IKEA India,

26

www.ikea.com/in/en/this-is-ikea/community-engagement/suppliers-pubf092ce96.
Accessed 30 Sept. 2019.
They also provide excellent customer service which attract customers as they have

after sales satisfaction as they can reach IKEA for any problems easily. IKEA has a

diversified product portfolio which attracts customers from everywhere as they have

variety and quality of products. No competitor in India provides this much

diversification of products and with so much of it they are able to attract more

customers. Based on these factors IKEA has very minimized threat from substitutes

from competitors if any.